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South32 metallurgical coal production decreases 6% in FY16

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World Coal,

In its financial report for year ended 30 June 2016 (FY16), South32 has reported Illawarra metallurgical coal saleable production decreased by 560 000 t (6%) to 8.4 million t in FY16 as challenging geological conditions were encountered at the Appin and Dendrobium mines in the first six months of the reporting period. Three planned longwall moves were also completed during the year.

The Appin Area 9 project was completed in January 2016, ahead of schedule and below budget, significantly increasing longwall utilisation and cutting rates. Saleable coal production guidance is unchanged at 9.5 million t for FY17 and this rate of production is expected to be maintained in FY18. Two longwall moves and one step around are planned for FY17, with the step around scheduled for the September 2016 quarter and the two longwall moves for the March 2017 quarter.

Operating unit costs decreased by 18% to US$61/t in FY16 as the US dollar strengthened and the company reorganised the operation into two teams, surface processing and logistics, and underground mining, thereby removing layers of management and functional support while creating greater focus. Employee and contractor numbers declined by 17%.

Previously announced restructuring initiatives have been completed and South32 expects operating unit costs, including sustaining capital expenditure, to decline to US$71/t in FY17 (FY16: US$80/t). This reflects planned Sustaining capital expenditure of US$117M, including underground development of approximately US$66 million.

Underlying EBIT decreased by US$31 million in FY16 to a loss of US$61 million. Lower realised coal prices (-US$128 million, net of price-linked costs) and a decline in sales volumes (-US$36 million) were partially offset by a US$67 million reduction in controllable costs and the benefit of a stronger US dollar (+US$71 million).

Capital expenditure decreased by 40% to US$185 million in FY16 with the completion of the Appin Area 9 project. Underground development of US$106 million included US$64 million for Appin Area 9.

Pre-tax restructuring costs, including redundancies, of approximately US$12 million were incurred in FY16 and have been excluded from the group’s underlying earnings measures.

Edited from press release by Harleigh Hobbs

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