4th Feb 2016 08:20
LONDON (Alliance News) - South32 Ltd Thursday said it has booked charges totalling USD1.70 billion in the first half of its financial year after reviewing its commodity price assumptions as the miner outlined the results of its strategic review of its manganese operations in South Africa.
The miner has restarted production of manganese in South Africa after suspending production in the last quarter of 2015, but said it plans to reduce the amount of production and warned significant job cuts will be made over the next six months.
South32 shares were trading up 12% to 52.75 pence per share on Thursday morning, one of the best performers on the London market.
"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," said Chief Executive Graham Kerr.
"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," he added.
The pretax, non-cash charge of USD1.70 billion will be booked in the six months ended December 31.
South32 launched a review of its manganese operations in South Africa last year after the company suspended mining activity at the Hotazel mines in November, which removed around 700,000 tonnes of manganese ore production from the global supply chain, with the miner still selling the inventory built up at the mine in the meanwhile - which has now almost depleted.
The company's manganese operation in the country includes the Wessels mine, which hosts higher-grade ore than the other mine at the operation, and Mamatwan, which is an open-cut mine that produces lower-grade ore.
South32 has around a 44.4% stake in those two mines, with peer Anglo American PLC also holding a stake in the project. Both companies hold their stakes through holdings in Samancor Holdings (Pty) Ltd, which owns 74% of the company that owns the assets.
Mining operations at both mines will now be restarted "with immediate effect" following the completion of the review, but South32 warned production will be "at a substantially reduced rate and with greater flexibility" compared to operations before the suspension.
The miner said the Hotazel mines will ramp up until production hits 2.9 million tonnes of manganese ore per year, which is around 900,000 tonnes less than before.
Production from the Wessels mine will be reduced by around 36% compared to previous levels to 740,000 tonnes per year, whilst production at the Mamtwan mine will also be reduced by 18% to around 2.2 million tonnes per year.
At the same time, South 32 expects the rand-denominated mine gate costs to be lower by a "commensurate amount" due to optimised mine plans, 620 job cuts and restructuring initiatives.
The miner said it will accelerate the second phase of the central block development project as Wessels mine in South Africa, which will cost South32 around USD19.0 million and enable mining to relocate closer to critical infrastructure and reduce cycle times.
In line with the production cuts, South32 will keep three out of its four furnaces shut at the Metalloys smelter, which is now generating free cashflow since restarting.
Overall, South32's share of the changes to the joint venture is expected to total around USD10.0 million, which will be booked in the current financial year to end in June 30, covering the cost of the redundancies and the costs of restructuring of the 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," said Kerr.
South32 said it plans to restructure other elements of its portfolio and said it is finalising plans to reduce costs at the Illawarra coal mine in Australia, the Cerro Matoso mine in Colombia, and at its alumina and manganese operations in Australia.
"These initiatives [to the wider portfolio] are expected to result in a substantial reduction in employee numbers during the remainder of the 2016 financial year and will be detailed in our December 2015 half year financial results," said South32.
By Joshua Warner; [email protected]; @JoshAlliance
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