South32 to book $109m impairment after putting SA’s Metalloys in mothballs
MININGMX / 20 JULY 2020 - 13.23 / DAVID MCKAY
SOUTH32 will book an impairment of $109m after putting its manganese alloys facilities in South Africa on care and maintenance.
Commenting in its fourth (June) quarter production report, the Sydney- and Johannesburg-listed diversified mining group also said it was continuing with a review of its Australian manganese alloys operations, TEMCO.
The manganese price has been volatile over the past 12 months. COVID-19 lockdowns resulted in an improvement, but the manganese market has been subject to prolonged downward price pressure. The increasing cost of electricity supplied by Eskom, has significantly contributed to the financial pressure on Metalloys.
South32’s share of one off, pre-tax restructuring costs, including redundancies, at Metalloys is expected to be $7m. The operation, based in Meyerton in Gauteng province, is at one million tons a year in capacity among the largest manganese alloy producers globally.
Manganese prices at spot in June were equal to 40% of South32’s earnings before interest, tax, depreciation and amortisation (EBITDA), according to a report last month by RMB Morgan Stanley. The suspension of activities at Metalloys is no surprise considering the fact that the assets have been under review for most of the financial year.
South32’s South African footprint is also set to diminish once it has completed the sale of its thermal coal assets, South African Energy Coal (SAEC). A trade sale to Seriti Resources was announced last year with transaction completion on track for the half year of South32’s current 2021 financial year.
In the three months under review, Richards Bay Coal Terminal (RBCT), the coal export facility in which South32 is a shareholder, gave its support to the transaction. South32 also said it had bought 8% in SAEC from its black economic empowerment partner, Phembani.
South32 continued to tighten its belt making $50m in annual savings after simplifying support structures. A new cost review had been opened amid “… a potentially extended period of volatility and lower commodity prices”, said South32 CEO, Graham Kerr. Additional details of the review will be available when South32 posts its annual results, scheduled for August 20.
As announced in March, South32 suspended its $1.43bn share buy-back programme, pending extension or expiry in September. It did not buy any shares in the fourth quarter which leaves $121m in un-purchased shares outstanding – about 92% complete.
On the balance sheet front, South32 extended its currently undrawn $1.45bn revolving credit facility by a year to February 2023.
Commenting on its Hermosa zinc project in Arizona, South32 said that completion of a pre-feasibility study for the Taylor Deposit would now be completed in the December quarter of this year. Exploration remains temporarily suspended owing to COVID-19 restrictions.
The group had also decided to postpone its 2020 calendar year exploration programme in Alaska with its joint venture partner, Ambler Metals.
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