South32 looking for assets despite $1.75bn loss, massive layoffs

BHP Billiton’s spin-off South32 (ASX, LON, JSE:S32) confirmed Thursday it is looking for assets, mainly copper ones, despite reporting a significant loss for the half-year and announcing it will cut more than 770 jobs across Australia.

In the six months to the end of December, the Perth-based company lost $1.75 billion due to write-downs of its manganese and coal assets.

The loss represents a dramatic turnaround from the company’s $339 million profit registered in the same period of 2014.

Underlying earnings, excluding non-cash impairments and the impact of foreign exchange, sank 94% to $26 million.

In terms of impairment charges, South32 took a $916 million hit on its Australian manganese business, and a $518 million one on its South African energy coal unit.

South32 chief executive Graham Kerr said the company is decreasing its workforce by 17%, which means that 4,500 jobs will be gone by June 30, 2017.

Around 390 jobs will be lost from the Worsley Alumina business in WA, while 300 will be lost at Illawarra coal in New South Wales. A further 82 jobs will be lost from the Groote Eylandt manganese mine in the Gulf of Carpentaria. The majority of cuts will be completed before June 30, Kerr said in a presentation.

The company’s international assets will also be affected, with mine production reduced at South African manganese, while the Cerro Matoso nickel mine in Colombia will lose 350 workers.

Copper, lithium assets wanted

Despite the gloomy results, South32 is sitting on nearly $700 million in cash and liquids and net debt of a modest $116 million. This means the company is one of the few out there, including BHP and Rio Tinto, which could take advantage of the severe downturn in the sector to buy assets at sale prices.

Last week, the firm said it was prepared to buy out the manganese assets of joint venture partner Anglo American (LON:AAL) if the mining giant was ready to accept a realistic offer.

The two companies share a manganese mining and smelting business located in Australia and South Africa.

Last month, there were rumours that the Perth-based company also wanted to acquire Anglo’s $1 billion niobium and phosphate business in Brazil.

But Kerr revealed the company sees copper as one of the more attractive sectors to invest in:

“Copper is obviously attractive given the supply-demand fundamentals; I think lithium and graphite have attractions, but they can be quite unique in terms of they are the flavour of the month if the technology moves,” he said.

“We will look across the whole commodity spectrum, but more toward the second and third generation of commodities,” Kerr added, referring to metals used for specialty applications.

The diversified miner, the world’s top manganese producer, also has interests in alumina, silver, nickel and coking coal — commodities hard hit in the wake of China’s economic pullback.

Investors reacted positively to the news. The company closed up 3.54% in Sydney to A$1.17, which brings the value of South32 up by more than 10% so far this year.