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South32 cuts jobs as it announces big loss

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World Coal,

South32 has announced plans to cut at least 300 jobs at its Illawarra Metallurgical Coal operations in Australia as part of plans to reorganise the mining complex into two operations. The cuts, which are due by the end of this financial year (June 2016), will reduce headcount at Illawarra by 14% compared to the end of the 2015 financial year.

The company is also cutting sustaining capital investment and underground development by 58% in the next financial year to June 2017, after the completion of the Appin Area 9 Project next month.

Meanwhile, production is expected to increase to about 9.5 million t by the end of the next financial year on the back of an increase in longwall utilisation at the Appin and Dendrobium mines.

Production from Illawara Metallurgical Coal fell 17% to 3.96 million t in the half year to December 2015 as difficult geological conditions and a longwall move hit output. With further longwall moves expected in 1Q16, the company lowered its production forecast for the full financial year by 7% to 8.25 million t.

“The refinement of our regional operating model allows us to remove additional layers of management, while further aggregating functional support,” said South32’s CEO, Graham Kerr, in a statement. “As a result we expect another significant increase in labour productivity and reduction in cash costs.”

Separately, the company announced a US$1.7 billion loss on the back of previously-announced writedowns to its manganese and South African thermal coal businesses.

Production of thermal coal was steady with the previous year at 16.4 million t as operational efficiencies at Khutala underground mine and the Wolvebrans Middelburg Complex mitigated the impact of the planned closure of the Khutala opencast mine. Full year guidance remains unchanged at 32 million t.

Lower commodity prices hit the company’s earnings with lower metallurgical coal prices reducing revenue by US$185 million and lower thermal coal prices reducing revenue by US$167 million. Overall, weakness in commodity prices reduced revenues by US$ 1 billion over the six months to December 2015.

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