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South32 determined to shed ‘CrapCo’ image

After 15 months in operation as a stand-alone entity, South32 Ltd. no longer sees itself as a spinoff of BHP Billiton Group's lower-quality assets, but as a unique mining house that is actually outperforming its former parent.

Ricus Grimbeek, South32 President and COO for Australia, pointed to both companies' share price performance on the ASX over the last year as an indicator of how well South32 is actually doing.

"We used to be called 'CrapCo' … but when you look at our operations, they are actually very high-quality, they just don't fit the BHP Billiton mold," he told attendees Sept. 29 at an industry event in Perth, Australia.

"They are a lot more complex and need special attention to be able to manage them very well and I just stand back and point at the score board. If you look at the different share price performance over the last 12 months, I think we are 30% or 40% better than BHP Billiton."

South32 shares climbed to an intraday high of A$2.45 on the ASX, from A$1.34 the same day a year ago, while BHP Billiton has come off a peak of A$25.77 in early October 2015 and is now trading at about A$22.24.

The company wants to differentiate itself from other large miners, and Grimbeek believes South32 has the "winning recipe."

"We are so focused on delivering our own strategy, our own regional model, creating a totally different culture as a company," he told reporters following the event.

"It's all about inclusion, it's all about creating that improvement culture, redesigning work, finding a way to guarantee people's safety. Those are the things that we are about and I just know that that's a winning recipe. So whatever the others do and where we come from, to me that's kind of irrelevant by now."

South32 has set itself ambitious P50, or stretch, targets centered on optimizing performance, improving safety, reducing costs and further unlocking the potential of its mines.

"We deliver on what we say we're going to do, so we put out some really tough targets — some P50 targets," Grimbeek said. "You normally don't see that in our industry."

"If we nail the safety performance … if we nail the cost out work that we're doing, in terms of unlocking more potential around the operations, if we nail something like the Cannington extension, if we do the work at Cerro Matoso to make that new mine work well, those are the things that I believe will add a lot to the share price."

At the Cerro Matoso nickel operation in Colombia, South32 is working to bring the new La Esmeralda mine online. A feasibility study indicated that the project is economically viable, and La Esmeralda has been granted environmental approval.

Meanwhile, South32 recently increased the reserves at the Cannington silver-lead-zinc mine in Queensland, Australia, extending the life of the operation by a year.

The company has also optimized the longer-term mine plan to increase total silver, lead and zinc extraction across the remaining years of the underground operation and reduce geotechnical risk by resequencing stope design.

This will mean a reduced output of 2% to 3% in the 2017 financial year and 10% to 13% in the 2018 financial year, but South32 will not have to make an investment decision to potentially extend the Cannington mine until the end of the decade.

South32 not a "bully"

The point of contention among contractors is the length of time it takes large miners to pay them, with many believing payment terms of 90 days is just too long.

According to a representative of South32, the company's policy is to pay its contractors within 30 days from the receipt of invoice.

"Because you are big company, it doesn't give you the right to just bully others, and I think it's important that we are all on the same playing field," Grimbeek told attendees at the industry event.

"We've all got a job to do … and it's the same with our suppliers, our communities. We all have to coexist, and relationships really matter so much. It's actually one of [our] distinctive capabilities as an organization, that we've identified relationships as a key element for us as a company."