Production was mainly weaker across the board on a year-on-year basis.

The main exception was nickel, with production of 11,700 tonnes up by 34% quarter-on-quarter and 21% year-on-year due to the deferral of scheduled maintenance at Cerro Matoso and the ramp-up of La Esmeralda.

Aluminium production was up by 2% over the June quarter due to a record at Mozal Aluminium, while manganese ore production was up by 11% as the company continued to take advantage of strong market conditions.

South32 said stronger commodity markets saw its net cash position increase by a further US$33 million to $1.7 billion, despite an increase in working capital, the continuation of the capital management program, and the investment in Arizona Mining.

But the company said industry cost curves were steepening due to US dollar weakness, rising raw material input costs and the environmental policy response in China.

South32 said its costs were still tracking to plan but said it would experience additional cost inflation over the year if the external pressures persisted.

The company left its FY18 exploration budget at $30 million after spending $6.8 million in the September quarter.

Shares in South32 dropped by 2.6% to A$3.145. The stock achieved an all-time high of $3.44 earlier this month.