The South32 Ltd (ASX: S32) share price is trading flat today despite the miner releasing a relatively positive business update on how its global operations are positioned in light of the growing crisis. In the meantime, the wider S&P/ASX 200 Index (ASX: XJO) is seeing further gains today of 1.7%.
Capital expenditure to be lowered through to FY 2021
South32 announced today a number of initiatives aimed at delivering around US$160 million in lower expenditure over the next 15 months. These initiatives form part of a plan to better position the group to ride out the current crisis. This US$160 million total will come from a reduction in sustaining capital expenditure of US$150 million, with reduced spend of 10% in FY 2020 and 18% in FY 2021, along with a reduction of US$10 million in spend for exploration activity.
South32 noted that its balance sheet remains in a strong position with reported net cash of US$277 million as at the end of last year. This includes cash equivalents totalling US$1.4 billion as well as no term debt. The group also has the ability to access a US$1.5 billion revolving credit facility in the months ahead if necessary.
The miner will also be looking at reducing total expenses across the group as it prepares for an extended period which could see lower commodity prices globally.
South32 Chief Executive Officer, Graham Kerr, said: "Sustaining capital expenditure to maintain safe and reliable operations remains a priority, however the flexibility of our programs across the Group means that some activity is able to be deferred to future years in response to unexpected market conditions."
South32 has also suspended its current on-market share buy-back. A total of US$121 million of the buy-back program currently remains, but the group may review the extension of the program before the current September expiry date.
Only South African and Columbian operations affected at this stage
South32 recently decided to withdraw its earnings guidance for FY 2020 after the South African government announced a 21-day nationwide lockdown aimed at containing the spread of the coronavirus. As a consequence, the company noted that its manganese operations and export coal production have been closed in South Africa for a minimum period of 21 days. However, on a positive note, its Hillside Aluminum smelter and domestic coal production from its South Africa Energy Coal operations remain open, as they are considered by the government to be essential operations.
In Columbia, the group's Cerro Matoso operations continue to operate with reduced capacity after the country ordered a 19-day nationwide lockdown.
No disruptions have been reported so far at any of South32's other global locations.
