South32 flags $US109m impairment charge, holds out Tas hopes

South32 is still seeking a buyer for its Tasmanian manganese smelter, after a flagging a $156m impairment charge.

South32's manganese operations in South Africa.

South32 says it still holds out hopes of finding a buyer for its Tasmanian manganese smelter, delaying a final decision on the fate of the facility again as the company took a $US109m ($156m) impairment on the value of its Australian and South African smelters.

South32 shares fell 5c, or 2.3 per cent, to close at $2.17 on Monday after the company disappointed the market by not giving any clear indication of when – or if – it will reinstate the remaining $US121m of its share buyback program, suspended in late March in the face of the coronavirus crisis.

And, despite a solid operational performance in the quarter, South32 also flagged $US116m ($165m) of impairment and restructuring charges in its half-year results next month, mostly relating to its struggling manganese smelters in South Africa and Australia.

More than 300 Tasmanian manufacturing jobs hang on the outcome of South32’s ongoing review of the TEMCO smelter, with the most likely outcomes the closure or sale of the ageing facility.

 

South32 had been due to make a decision on its fate by the end of June, but said in its quarterly production report on Monday the closure of the review had been delayed due to the coronavirus crisis.

It is understood one of the reasons for the delay is the travel restrictions between Australian states that have hampered the ability of potential buyers to conduct due diligence on the asset.

South32 has already effectively closed its Metalloys smelter in South Africa, jointly held with Anglo American and local black empowerment partners.

The facility was put on temporary care and maintenance due to coronavirus restrictions in the March quarter, and it is understood the facility has not been returned to operation, with South32 saying on Monday it has begun the process of making its workforce redundant, at a cost of about $US7m including restructuring costs.

The company also put the rest of its workforce on notice it was launching a further round of cost-cutting across its global operations “to prepare for a potentially extended period of volatility and lower commodity prices”, after cutting $US50m in back-office costs last financial year.

South32 reported a mixed set of results from its global operations for the financial, with a standout quarter from its flagship Cannington base metals operation and strong performances from its alumina business offset by lower thermal coal output and manganese output.

Cannington beat the company’s production guidance for the financial year by 8 per cent and South32 said it had achieved record production at the Brazil Alumina, Hillside Aluminium and Australian manganese ore divisions in the year.

But South32’s latest results show it has been hit badly by the global coronavirus crisis, with the price of key commodities tumbling in the wake of the global economic slowdown.

First-half alumina prices were down 16 per cent to $US269/t compared to the last six months of 2019, and its average received price of $US322/t for the full year was only 70 per cent of the previous financial year.

Metallurgical coal prices were an average 31 per cent lower, year-on-year, at $US145, with the company receiving an average price of only $US138/t in the six months to the end of June.

Despite tumbling prices in key commodities, South32 chief executive Graham Kerr said the company was still seeing “good” demand for its products, with sales outpacing production at most of its operations.

With Dow Jones Newswires