South32 (ASX:S32) share price drops on US$195 million net loss after tax

The miner has delivered its FY21 result to investors…

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The South32 Ltd (ASX: S32) share price is in reverse on Thursday morning following the mining outfit’s full-year FY21 results. It may come as a surprise the company reported a relatively strong result, yet delivered a mammoth net loss after tax.

At the time of writing, South32’s shares are fetching for $2.85 apiece, down 1.38%.

South32 share price stutters

The South32 share price fell wayside after the company delivered its result for the 12 months ending 30 June 2021. Here are some of the key highlights:

  • Total revenue improved to US$6,337 million, up 4% on the prior year (FY20 US$6,075 million);
  • Underlying earnings before interest and tax (EBIT) jumped to US$844 million, up 89% on the prior year (FY20 US$446 million);
  • Net loss after tax came to US$195 million, (FY20 net loss after tax US$65 million);
  • Underlying earnings per share (EPS) rocketed to US 10.3 cents, up 164% on the prior year (FY20 US 3.9 cents per share); and
  • Full-year dividend (ordinary and special) lifted to US 6.9 cents per share, up 82% on the prior year (FY20 US 3.2 cents per share).

What happened in FY21 for South32?

On the production front, South32 came in strongly. The company achieved record production at Worsley Alumina and Brazil Alumina with both refineries benefitting from higher plant availability. In addition, the company’s attained its best ever output at Australia Manganese, exceeding previous earnings guidance.

Sales volumes increased and realised prices for aluminium, silver, zinc and nickel all improved. Higher base metals prices were partially offset by lower realised prices for South32’s bulk commodities, with metallurgical coal and manganese ore prices declining.

The strong operating result and higher prices translated into an improved group operating margin of 26%. South32’s cost base remained relatively unchanged despite higher power costs, the inflationary impact of global freight rates and stronger producer currencies.

The company’s response to the pandemic continued throughout FY21 whilst controls remained in place across its operations. It noted that some of the COVID-19 local cases are in areas where it currently operates.

However, affecting the South32 share price is the company’s sizeable loss on the bottom line. South32’s statutory profit after tax declined by US$130 million to a loss of US$195 million following the recognition of impairment charges totalling US$728 million (US$510 million post-tax).

This is in relation to Illawarra Metallurgical Coal and a loss on sale of US$159 million following the company’s divestment of South Africa Energy Coal.

What did management say?

South32 CEO Graham Kerr touched on the company’s performance, saying:

During the year, we made substantial progress reshaping our portfolio, completing the divestments of South Africa Energy Coal, the TEMCO manganese alloy smelter, and a portfolio of non-core precious metals royalties. This simplifies our business, reduces capital intensity and will improve our underlying operating margin.

At Hermosa we continue to progress studies for the Taylor and Clark deposits. We have also commenced the summer field season drilling program at the Ambler Metals Joint Venture in Alaska.

What’s next for South32?

Looking ahead, South32 expects to see robust volumes at its base metals operations following investment projects to increase aluminium and nickel production. This is in relation to the company’s Mozal Aluminium, Cerro Matoso and Cannington sites.

While remaining subject to further potential impacts from COVID-19, FY22 guidance is unchanged. This is, however, with the exception of the company’s non-operated Brazil Alumina and underground base metals operation at Cannington.

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Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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