South32 targets $1.7bn writedown

RESOURCES giant South32 on Thursday announced a $1.7bn impairment of its assets stretching from Southern Africa to Australia and South America.

Major considerations for the firm’s investment in mines in SA included a stable political environment, monetary policy and administration of licensing regulations, said South32 president and chief operating officer for Africa Mike Fraser at a conference in Cape Town.

Local coal and manganese mines are among the writedowns. The biggest impairment is for $900m at Australia Manganese. This is part of its plan to substantially reduce cash costs.

“We will continue to focus on the things that we can control: safety, volume, costs and capital expenditure, as we seek to optimise the performance of our operations,” said South32 CE Graham Kerr in a statement to the JSE.

“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,” he said.

Along with its impairment announcement, South32 said its 60%-owned Samancor Manganese joint venture would resume manganese ore production, albeit at significantly reduced volumes. While the reduced output would gradually scale up to 2.9-million tonnes per year, it would take about 23% of production out of the market. The firm said it would also look to optimise mine plans, redundancies and other restructuring initiatives to cut rand-denominated mine gate costs “by a commensurate amount”. Capital expenditure for the next financial year would be reduced by about 80% to $7m.

South32 produces coal from the Khutala mine and the Wolvekrans Middelburg Complex and sells it to Eskom, which has amended its procurement requirements to demand a 50%-plus-one share black ownership to do business. Eskom is the single largest buyer of coal in SA. The Department of Mineral Resources requires only a 26% black ownership level for approving mining licences.

There needed to be more alignment between these requirements, said Mr Fraser. Clarity was important to incentivise investments, he said.

The environment for SA’s coal miners has become tougher, with a collapse in global seaborne coal and other commodity prices, rand exchange rate volatility, as well as Eskom’s new contracting requirements. Another serious deterrent is that amendments to the Mineral and Petroleum Resources Development Act have been on hold for more than a year because of problems with certain provisions.

Martin Madlala, spokesman for Mineral Resources Minister Mosebenzi Zwane, said at the IHS Energy South African Coal Exports Conference 2016 that the minister was focusing on progress on an updated Mineral and Petroleum Resources Development Amendment Bill in the first half of this calendar year.



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