South32 warns of ‘real risk’ of tax and royalty hikes

Cashed-up miners celebrating record profits face a ‘real risk’ of tax and royalty hikes as governments look to plug budget holes, according CEO Graham Kerr.

South32’s Worsley Alumina operations.

South32 chief executive Graham Kerr says there is a “real risk” other governments will follow Queensland’s example and lift mining royalties to plug holes in their budget caused by the ­pandemic.

After the mining major announced a record $US2.67bn ($3.83bn) full-year profit, Mr Kerr nominated the issue as one of the major geopolitical risks facing mining companies over the next year.

“Whether it is Queensland, the UK, Chile or Colombia, I think there are a number of jurisdictions that are looking at ways to actually have a bigger piece of the pie,” he said.

“In some aspects that is to ­actually pay for the cost of Covid-19 and rebalance individual countries’ books. In the short term that is a real risk. Medium to long term, the industry has probably never been more attractive, particularly when you think about those commodities that have any exposure to decarbonising the world.”

South32 on Thursday said it would pay US17c a share in dividends on the back of its $US2.67bn net profit, with the company flagging a lift in output across the bulk of its global operations in the current year.

The mining giant will pay a US14c-a-share final dividend and US3c-a-share special dividend after booking record underlying earnings before interest, tax, depreciation and amortisation of $US4.76bn, up 156 per cent from the previous ­financial year, as prices for its commodities lifted sharply during the year.

South32 said its operations had been able to contain cost inflation to an average 2 per cent during the year, with its global operations generating a record $US2.56bn for the year.

“Reflecting our strong financial performance and disciplined approach to capital management, the board has resolved to pay a $US648m, fully franked final dividend in respect of the second half of FY22 and a $US139m fully franked special dividend, taking shareholder returns to a record $US1.3bn in respect of the 2022 financial year,” Mr Kerr said.

“The board has also resolved to further expand our capital management program by $US156m to $US2.3bn, leaving $US250m to be returned to shareholders by September 1, 2023.”

South32 has winnowed down its mining portfolio over the past few years, exiting its South African thermal coal business and its struggling manganese alloy smelter in Tasmania.

But the company still has an extensive growth pipeline ahead of it, with the company running the numbers over the development of new base metals mines in Arizona and Alaska, and brownfield extensions and expansions around its existing South American, Australian and South African operations.

But with revenue still strong from its operations, Mr Kerr said the company had no intention of building up a “war chest” for ­future capital spending or mergers and acquisitions.

“We believe in a strong balance sheet and our capital management framework remains unchanged,” he said. “We look at the most efficient and effective way to return cash back to our shareholders,” he said.

South32 shares rose 1 per cent to $4.27 on Thursday.