JOHANNESBURG (miningweekly.com) – Through actively reshaping and improving the South32 portfolio by “embedding high-quality growth options” with a bias towards base metals, COO Mike Fraser expects to see further growth for the mining and metals company as the world transitions to a lower-carbon economy.

The company’s strategy, including its approach to capital management and strong financial position, means that South32 “is well placed” to navigate the potentially extended period of uncertainty caused by Covid-19, he says.

In the five years since South32’s listing, the company has focused on further strengthening its balance sheet through generating earnings and cash over this period.

In turn, this talks to the resilience of the portfolio, says Fraser, who adds that the company has been disciplined in how it has been allocating its cash to not just improve its portfolio, but also to ensure returns to shareholders and strengthening its balance sheet.

With net cash, no term debt and an undrawn revolving credit facility, Fraser says South32 has “substantial liquidity” at hand.

South32’s capital management framework is further underpinned by not just disciplined allocation of capital, but also its strong balance sheet.

“The capital management framework is held to the strong belief that the combination of high operating leverage and undue financial leverage delivers a sub-optimal outcome to the shareholders,” he comments, adding that the company’s framework focuses on safe and reliable operations, as well as its investment-grade rating.

South32’s next priority is to return a minimum of 40% of underlying earnings as ordinary dividends through its flexible dividend policy.

“The framework is designed so that all excess capital competes for a home in our business. These options could be further investment in our business and in new projects, through acquisitions, greenfield exploration, share buy-backs or special dividends,” Fraser explains.

During the past five years, Fraser says the company has “developed a very strong record of returning excess cash to shareholders”, including $1.3-billion through its flexible capital management programme.

Combined with another $1.6-billion in ordinary dividends, South32 has, over the last five years, returned about 40% of its current market capitalisation to shareholders.

Further, Fraser also confirms that the sale of South32’s energy coal business to Seriti Resources is “on track” for completion, though subject to a number of material conditions, which the companies are in the midst of concluding.

Completion of this transaction will be an important milestone for the South32 business, as it will substantially reduce its capital intensity, strengthen its balance sheet and improve the group’s operating margins.

“It’s also going to enable the South African energy and coal business to operate safely and sustainably into the future for the benefit of its employees, customers and local communities, consistent with the transformation agenda that we committed to in South Africa,” Fraser comments.

Fraser spoke during this year’s Joburg Indaba, which is being held virtually on October 7 and October 8.