South32 warns on labour, supply chain bottlenecks as it provides quarterly production update

South32 has seen a decline in coal and manganese output as it warns supply chain bottlenecks and labour shortages will impact the business.

South32 has seen a decline in coking coal and manganese output.

South32 say it expects supply chain bottlenecks and labour challenges from rising Covid-19 infections to persist for months – with the company revising down output forecasts for the year.

In its quarterly update, the miner revised down its Australian manganese production guidance by 9 per cent citing the impact of Covid-19 and adverse weather that it said prevented the rebuild of stockpiles ahead of the wet season.

But it has retained its metallurgical coal guidance for the time being, telling the market it would provide a further update at the half-year result.

“The Covid-19 pandemic continues to impact our operations and supply chains in different ways, across our global portfolio,” the miner told investors on Monday.

“We have seen an increase in case numbers and workforce restrictions in many of the jurisdictions in which we operate, impacting labour availability.

“Port congestion and tight global freight conditions continue to impact our supply chains, slowing the movement of inventory, most notably for our aluminium smelters in southern Africa.”

South32 shares closed down 3.7 per cent at $3.94 on the news, after falling as low as $3.78 during Monday’s session. However, they are up 43 per cent over 12 months.

While the miner expects build-up in aluminium inventory during the first half to persist in the near term, it said it was working to establish alternative shipping solutions and points of dispatch to minimise the impact.

“We expect the working capital build to unwind once we ­realise the full benefit of our initiatives, and port congestion and general freight tightness is alleviated,” it said

The miner retained its 6.3 million tonne metallurgical coal guidance for the year, but cautioned that this was subject to further Covid-19-related impacts on labour availability. An update would be provided with its half-year results.

Over the quarter, metallurgical coal production fell 14 per cent to 1.2 million tonnes, down from 1.4 million tonnes in the prior corresponding period.

Manganese production, meanwhile, fell 10 per cent to 1.3 million wet metric tonnes, down from 1.46 wet metric tonnes. Alumina production of 1.33 million tonnes was up 4.2 per cent on the quarter, and in line with Bloomberg’s consensus analyst estimate, while aluminium produc­tion fell 0.8 per cent to 246,000 tonnes, versus a consensus estimate of 261,086 tonnes.

“We achieved a number of strong production results across our portfolio and realised significantly higher commodity prices in the December 2021 half year, lifting operating margins across the group,” South32 CEO Graham Kerr said.

“We delivered higher base metals production and our integrated aluminium supply chain benefited from additional alumina volumes and record aluminium prices.”