South32 Takes $1bn Hit on Illawarra

South32 has revealed plans to write-down nearly $A1 billion worth of value from its Illawarra hard coking coal export business in its 2020-21 annual results next month.

The company revealed the planned write-off in its June quarterly report, released on Wednesday.

The company said it will book a pre-tax $US728 million ($989.6 million) impairment on the value of its Illawarra Metallurgical Coal which operates two hard coking coal mines south of Sydney.

The impairment decision comes after the NSW government rejected South32’s application to extend its mine – the Dendrobium Next Domain coal mine project – due to concerns about irreversible environmental damage and potential pollution of Sydney’s drinking water.

The Illawarra business produced less coal than the company was expecting due to “challenging strata conditions at our Appin mine” in the June quarter.

It also completed a “longwall move” during that quarter and plans three more longwall moves in 2021-22.

The write-down will take some of the gloss off what was a good year for the miner.

The quarterly report revealed strong alumina, zinc, nickel and manganese production during the three months ending on 30 June.

“During the year we achieved production records at Worsley Alumina, Brazil Alumina and Australia Manganese,″ CEO Graham Kerr said in the report.

In the full year, alumina production was up 2%, metallurgical coal production increased 11%, lead production was up 19%, and silver production jumped 16%.

But thermal coal production dropped 19% with a substantial drop in coal production in the final quarter, and nickel production fell 16% despite strong production volumes in the final quarter.

South32 also divested its South32 SA Coal Holdings to Seriti Resources at a loss of $US160 million, as part of its target of reducing carbon emissions by 50% by 2035. The sale to Seriti also includes a $US200 million rehabilitation fund for the mines and other facilities.

South32 has returned $US346 million to shareholders through an on-market buy-back totalling 172 million shares. $225 million worth of capacity remains in the $US1.88 billion buyback which is due to complete in September this year.

The shares rose 1% to $2.84.


About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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