Australia's South32 sees brighter manganese outlook, shares soar

SYDNEY, April 19 (Reuters) – Australia's South32 Ltd , the world No. 1 manganese producer, on Thursday raised its output guidance for the steelmaking ingredient amid strong demand and high prices related to U.S. sanctions against Russia, sending its shares to an all-time high.

The company, spun off from mining giant BHP Billiton Ltd in 2015, said Australian manganese output rose nearly a sixth in the three months to end-March, while South African output dipped 5 percent in the same period.

The Perth-based miner plans to raise its Australian manganese production by 6 percent to 3.3 million wet metric tonnes and its South African output by 5 percent to 2.15 million wet metric tonnes to meet demand, it said in a quarterly update.

Shares of South32 rose as much as 6 percent, hitting an all-time intraday peak of A$3.99 ($3.10), as bullish sentiment towards the price of metals potentially caught up in U.S. sanctions helped investors overlook what analysts said was an otherwise patchy result for the company.

"Whilst we view S32 as fully valued at current levels, we are mindful that the current commodity price environment … would provide a boost to cash flow and likely entice investors to the stock on a near term trade," Royal Bank of Canada analyst Paul Hissey said in a client note.

Investors are especially upbeat about the prices of aluminium and alumina, added Hissey. South32 missed analyst estimates with a 5 percent decline in alumina production due to maintenance at refineries in Australia and Brazil but stuck to its full-year output guidance.

The company also stuck to its full-year guidance for aluminium production despite flat or softer quarterly results at its two refineries.

"We delivered production records at Mozal Aluminium and Australia Manganese and have increased full year guidance for both of our manganese operations in light of strong market demand," South32 Chief Executive Officer Graham Kerr said in a statement.

The company meanwhile posted a 44.5 percent slump in third-quarter coking coal production and cut full-year output guidance at its Illawarra mine, south of Sydney, the result of an extended outage as it undertakes ground rehabilitation work.

Coking coal production fell to 794,000 tonnes, from 1.4 million tonnes a year earlier.

The company cut its output guidance for Illawarra coal to 4.1 million tonnes from 4.5 million.

South32 was forced to suspend operations there in mid-2017 because of concerns about high gas levels in the mine. Government regulators let the company partially restart the mine in August last year.

($1 = 1.2872 Australian dollars)

(Reporting by Byron Kaye in SYDNEY and Chandini Monnappa in BENGALURU; Editing by Eric Meijer and Amrutha Gayathri)