South32’s Graham Kerr casts doubt on Donald Trump’s tariff strategy
South32 CEO Graham Kerr says Donald Trump’s tariff rollout likely to fail for a second time as higher costs are passed on to end users of aluminium.
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South32 CEO Graham Kerr says Donald Trump’s tariff rollout is likely to see higher costs being passed on to end users of aluminium, after the policy failed to boost the supply of American-made product the last time the US President was in office.
Mr Kerr said the 25 per cent tariff on imports to the US was unlikely to have much impact on South32’s three aluminium smelters, or the Worsley alumina operations in Western Australia that came within a whisker of closing as the company sweated on state and federal environmental approvals to continue bauxite mining.
“The tariffs ultimately will have to get passed on to end users if there’s no inducement of new supply,” he said.
“This is not the first time that tariffs are being placed on aluminium. Last time it did not induce new supply in the US.
“There is going to be a need for new aluminium smelters outside of China, particularly with China having a cap on production and not looking to export.”
Mr Kerr said new investment in smelters required competitively priced renewable power and that was not readily available in the US compared to Canada with its large hydro capacity.
South32 sees little chance of Canada, where Alcoa and Rio Tinto produce aluminium, losing its market dominance in the US even if hit with tariffs, with the extra costs likely to flow through to the automotive, aerospace, construction and other end users.
“If you’re going to build an aluminium smelter in the US, you’re talking about a lot of capital and talking about a long approval process even if the Trump administration fast-track it,” Mr Kerr said.
“The Western world has not built a smelter for a long time. The Chinese have perfected that with multiple builds and replication over the past two decades.”
South32 operates aluminium smelters in South Africa, Mozambique and Brazil with about 15 per cent of its production sold into the US in the six months to December 31.
The Perth-headquartered company banked a higher first-half profit on increased sales volumes of aluminium and copper and higher average commodity prices.
South32 reported a profit of $US360m ($572.7m), up on the $US53m result at the same time last year, with revenue up 25 per cent at $US3.1bn. The strong performance more than offset lower contributions from steelmaking commodities following the sale of Illawarra
Metallurgical Coal and the impact of Cyclone Megan, which smashed its GEMCO manganese operations at Groote Eylandt in March last year.
South32 will pay an interim dividend of US3.4c a share on April 3. Production guidance for 2024-25 was unchanged, except for Mozal Aluminium, where the company has been hit by the civil unrest plaguing Mozambique.
Mr Trump’s “drill, baby, drill” mantra and his promises to unlock resource deposits in Alaska have the potential to benefit South32 mining projects.
The company is looking to push ahead with the Hermosa high-grade copper, manganese plus zinc-lead-silver mine in Arizona, and with a copper project in northwest Alaska where state authorities blocked the building of a key access road on environmental grounds.
Mr Kerr said time would tell if Mr Trump’s second coming benefited South32, and noted the company had some good wins on the Hermosa project under the Biden administration.
South32 pulled the trigger on developing the Taylor zinc-lead-silver deposit with the wider Hermosa project at a cost of $US2.16bn in February last year, and was put on an approvals fast-track by the former government.
“The important thing is the American people have spoken on who they want to govern, and that’s clearly Trump,” Mr Kerr said. “We would expect not to lose the benefits we’re seen under Biden around permitting support, etc.”
Mr Kerr said South32 would prefer to continue to negotiate with local authorities and traditional owners to reach agreement on the Ambler road issue.
On environmental approvals in Australia, Mr Kerr said South32 had only narrowly avoided having to shut down its Worsley alumina operations in WA in a move that would have cost 1700 jobs.
He said the company had to dig up roads and go back over ground where mining rehabilitation had started to source enough bauxite to keep its alumina plant running while waiting for approvals.
South32 confirmed on Wednesday that it had gained a tick from commonwealth environmental authorities for a 15-year expansion of mining.
The WA government signed off on the expansion in December after relaxing carbon emissions limits and bushland preservation targets that South32 claimed were far too onerous.
“We were running out of bauxite to keep the alumina refinery running, and refineries are very similar to a smelter in that they need to have that constant feed,” Mr Kerr said. “We were probably months away from having to take the drastic steps.”
On the badly damaged GEMCO manganese operations, Mr Kerr said South32 remained interested in buying out its minority partner Anglo American at the right price.
The business, 60 per cent-owned by South32, has received insurance payments of $US250m to date to cover damage caused by Cyclone Megan.
South32 is trying to sell its nickel operations in Colombia after being hit by the same increase in production from Indonesia that cruelled the industry in Australia.
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