In May last year, Australian resources group BHP Billiton hived off its South African assets in a decision its spin doctors said was to make the group more manageable. Most analysts interpreted it as a vote of No Confidence in the politial management of the country’s mineral wealth. So far there has been little difference between the drop in BHP’s own share price (down 43% in Rand terms) and the vehicle used for the exercise, ill-named South32 (down 45%). But after this morning’s announcement that South32 will be writing another $1.7bn off the book value of its assets, there are sure to be some in BHP’s Melbourne edifice congratulating themselves on their bet against South Africa. In US Dollar terms, South32’s price has lived up to tis name, having gone south to the tune of 60% since last year’s May 18 listing. The only upside for shareholders in the spinoff is how the time of its listing the company was touted as a potential takeover target for Xstrata’s founder Mick Davis. At this price, other suitors (or, more accurately, corporate vultures) must surely be circling. – Alec Hogg
(Bloomberg) — South32 Ltd., the world’s largest manganese producer, expects to book a $1.7 billion writedown on assets from Brazil to South Africa, slash costs and trim production after the collapse in commodity prices. The stock is heading for its biggest rise in almost nine months.
About 620 jobs will be cut at its manganese joint venture in South Africa and the company is completing cost-cutting plans at its coal, alumina and manganese operations in Australia, South32 said Thursday in a statement. The cost-control measures could save $1 billion in annual costs, according to Deutsche Bank AG.
The global rout in commodity prices is forcing producers to book impairments as volatility in China’s equity and currency markets rattles investors and faltering growth in the largest consuming nation erodes demand. BHP Billiton Ltd. last month flagged a $7.2 billion pretax charge against its U.S. shale unit and Barrick Gold Corp. said it may book as much as $3 billion in charges.
“There’s been an overhanging question of what they were going to do with several operations that were clearly a drag,” Evan Lucas, a market strategist at IG Ltd. in Melbourne, said by phone. Job losses and cost cuts will be “hard to swallow if you are an employee, but it’s a positive step,” he said.
Read also: BHP spinoff South32 targets Anglo’s $1bn Brazil op
The stock rose 9.5 percent to A$1.04 in Sydney trading at 11:55 a.m. local time, the most since May 19.
‘Commodity Outlook’
South32 “is not immune to external influences and the significant change in the outlook for commodity prices is expected to result in non-cash charges of approximately $1.7 billion,” Chief Executive Officer Graham Kerr said. The company is scheduled to report first-half earnings Feb. 25 when it will detail the further cost cuts.
The producer expects to take impairments against coal operations in South Africa, manganese assets in Australia and South Africa and a Brazilian alumina unit, South32 said in the statement.
Read also: The journey south: South32 open to acquisitions after BHP Billiton breakaway
While manganese output will resume from its joint venture with Anglo American Plc in South Africafollowing a suspension and strategic review, this will be at a “substantially reduced rate,” taking about 900,000 metric tons out of the market, it said.
Annual sustaining capital expenditure at the venture is expected to fall by 80 percent to $7 million in the 12 months to June 30, 2017, the company said. The Metalloys smelter will continue to operate only one of four furnaces, the statement said.
The company, created after BHP shed a collection of assets to focus on a smaller number of commodities, sees costs reductions across assets from Colombia to Australia as likely “to result in a substantial reduction in employee numbers,” it said.
