Miner South32 (S32), the BHP Billiton (BHP) spin-off, yesterday took the long-handled axe to its asset values and chopped them by $US1.7 billion (or close to $A2.4 billion) in a major clean up of its accounts ahead of the interim financial results on February 25.
Yesterday’s write-downs takes the total since the company was spun out of BHP last May to more than $US2.1 billion after it took $US416m of impairments at June 30 last year.
The February 25 interim announcement is likely to be full of red ink, with more impairments and hundreds of job losses – some in Australia – likely to be revealed later this month, and over the rest of 2016.
But investors cheered the news, sending the shares up more than 13% to $1.085, the highest they have been since early December.
Yesterday’s announcement revealed a major restructure of South32 had been set in train with hundreds of jobs cut, mine production slashed and $US1.7 billion worth of non-cash charges reported later this month.
The miner said 620 jobs will be cut from its manganese assets in South Africa, amid a significant scaling back of the assets in that division. The results of a review of those assets were promised by the end of last month in the company’s interim production report, released earlier in January.
And jobs in Australia will not be immune from the purge, with South32 warning yesterday that numerous local operations were also being restructured.
“Our teams are currently finalising plans that will deliver a meaningful reduction in costs at Illawarra metallurgical coal, Cerro Matoso, Worsley Alumina and Australian Manganese,” said the company in a statement to the ASX
“These initiatives are expected to result in a substantial reduction in employee numbers during the remainder of FY16.”
The company also has a manganese mine on an island in the Gulf of Carpentaria, and any possible changes to that operation will be announced at the half year results on February 25.
The South African manganese business has been under review for more than three months, with several of the assets halted while the review progresses.
S32 vs BHP 1Y – Spinoff South32 underperforms BHP
South32 confirmed yesterday that three of its four manganese smelters will remain closed indefinitely, while mine production in South Africa will be reduced by 23%.
South32 Chief Executive Officer, Graham Kerr, said: “The completion of the South Africa Manganese strategic review is important for our Company as it will allow us to re-base manganese ore production at a significantly lower level while reducing Rand denominated mine gate costs by a commensurate amount.
"When combined with the restructuring initiatives that are currently being finalised at many operations across our portfolio, we expect to further strengthen our financial position and increase our cash generating capacity through the cycle.
“We will continue to focus on the things that we can control; safety, volume, costs and capital expenditure, as we seek to optimise the performance of our operations. This strategy to maximise value rather than volume, our high quality operations and well-defined financial policies underpin our resilience at current commodity prices and we remain exceptionally well positioned for any improvement in industry fundamentals.
“We are, however, not immune to external influences and the significant change in the outlook for commodity prices is expected to result in non-cash charges of approximately US$1.7B when we report our December 2015 half year financial results,“ he said yesterday.
