South 32 shares have dipped after the diversified miner warned that it may be facing cost pressures from rising raw material input costs and a weaker US dollar.
The company, in its September quarter report on Thursday, has maintained its annual guidance across operations despite softer production in its first quarter and the costs warning.
"Industry cost curves continue to steepen as a result of US dollar weakness, rising raw material input costs and the environmental policy response in China," the company said, referring to China's recent introduction of tighter regulations for its steel industry.
It said while unit costs are tracking to plan so far, it may experience "additional cost inflation" if the external pressures persisted during the year.
The miner posted a two per cent increase in aluminium production to 249,000 tonnes for the September quarter, while nickel output jumped 34 per cent to 11,700 tonnes.
The company, which is the world's largest producer of manganese ore, also took advantage of strong market conditions to boost production of the ore by 11 per cent to 1.3 million tonnes.
However, production for alumina, coal, silver, lead and zinc all slipped in the three months to September 30.
Production of metallurgical coal slid 66 per cent from a year ago to 494,000 tonnes, with performance weighed down by the shutdown of the company's Appin mine in NSW, with operations there only resuming last week.
South32 confirmed it would only operate one of the two sections at the troubled Appin coal mine, where operations have been suspended since June due to safety concerns.
"We have commenced a measured ramp-up of longwall mining activity at the Appin mine that will allow us to reset the operation's culture, re-establish minimum performance criteria and drive productivity towards a more acceptable level," chief executive Graham Kerr said.
Output of energy coal, used in power plants, also fell 14 per cent to 7.01 million tonnes, in part due to maintenance at the South African operations.
"South32 is well exposed to the other commodities which appear linked to ongoing reforms in China and we believe this is what has driven the stock in recent times, along with the company's capital management plan," RBC Capital Markets analyst Paul Hissey said in a note.
By 1035 AEDT, South32 shares were down 1.8 per cent at $3.17 in a firm Australian market.
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