The company last month again downgraded the guidance for Illawarra Metallurgical Coal last month to 8.1 million tonnes from 9Mt.

Metallurgical coal production was down by 3% for the quarter to 1.39Mt, and down by 14% for the half to 2.82Mt.

South32 CEO Graham Kerr said Appin Area 7 had returned to full capacity and remediation work at Appin Area 9 was continuing as planned.

“At Illawarra Metallurgical Coal, we have addressed a number of operational challenges during the quarter and our remediation activities are tracking to plan,” he said.

Energy coal production was down by 8% for the quarter and half due to the closure of the North plant at the Wolvekrans-Middleburg complex, scheduled maintenance and the repositioning of draglines.

Silver and lead production for the half was down by 27% and 21% respectively due to weaker production at Cannington.

Zinc output was up by 1% to 42,100t for the half and by 38% for the quarter to 24,400t.

Guidance for Cannington remains unchanged as the company expects to extract a high-grade stope in the current half.

The highlight for the quarter was record production at Brazil Alumina, which was up by 6% to 347,000 tonnes.

Overall alumina production was up by 2% to 1.32 million tonnes for the quarter, but down by 2% to 2.61Mt for the half.

Manganese ore production was up by 6% to 1.25Mt for the quarter due to the drawdown of Wessels concentrate stockpiles and the ramp-up of PC02 production at GEMCO.

“We have demonstrated the flexibility of our manganese business to respond to favourable market conditions by opportunistically increasing ore production,” Kerr said.

Despite the “generally challenging quarter”, South32 said it should achieve FY17 guidance at most of its operations.

“While stronger commodity prices and our significant operating leverage have enabled us to further strengthen our financial position, we continue to focus on the basics; the safety of our people and the optimisation of our operations,” Kerr said.

The company said its strong balance sheet remained a priority and its net cash position benefitted from gross distributions totalling $US137 million from investments during the half.

South32 spent $8.2 million on exploration during the December half.

After reporting a quarter largely in line with expectations, RBC Capital Markets analyst Paul Hissey said the focus would now be on South32’s financials to be released next month and the impacts of higher prices and the progress of productivity initiatives.

“At the end of FY16, South32 reported net cash of $312 million. Prior to incorporating today's production result, we forecast S32 to add around $700 million cash in 1H17 (we estimate that the impact from lower met coal production in today's report reduces this to $600 million on a simple pro-forma basis),” he said.

“Given the lack of debt on the balance sheet, there is potential for capital management and/or shareholder returns to be outlined in the financial results, although we think it is possible the market may be largely anticipating such an announcement and therefore risk could be to the downside if absent.”

Shares in South32 were A1.5c higher at $2.825. The stock hit an all-time high of $3.065 last month.