South32 flags $1.7bn in writedowns

Melbourne – South32, 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 rose the most since listing last year.

About 620 jobs will be cut at its manganese joint venture in South Africa and the company is completing cost-cutting plans at operations including coal, alumina and manganese businesses 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 last month flagged a $7.2 billion pretax charge against its US shale unit and Barrick Gold Corp.said it may book as much as $3 billion in charges.

Also read: South32’s manganese output slumps

“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 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.

The stock rose 14. percent to A$1.085 in Sydney trading, 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,” CEO Graham Kerr said. The company is scheduled to report first-half earnings February 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.

While manganese output will resume from its joint venture with Anglo American Plc in South Africa following 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.