BHP spin-off South32 to write down $1.9 bn on manganese, coal assets
22 July 2015
South32, the new global metals and coal miner formed through the spin-off of mining giant BHP Billiton, has indicated impairment charges to the tune of $1.9 billion on its manganese and coal assets.
Perth-based South32 was formed just two months ago, through the demerger of BHP's non-core assets including aluminium, coal, manganese, nickel, silver, lead and zinc operations. (See: BHP spin-off South32 makes modest debut in ASX)
The forming of South32 was one of the largest corporate break-ups in mining history, and its debut in the Australian Stock Exchange (ASX) was the biggest new listing in 16 years.
In its quarterly report for June, the miner said that its parent company BHP Billiton has notified non-cash pre-tax impairments of South32 assets totaling $1.9 billion, of which over $1.3 billion is related to the company's manganese assets.
Approximately $882 million of the charges pertains to South Africa Manganese, $445 million at Australia Manganese and $539 million at South Africa Energy Coal.
The cumulative charge of $1.3 billion on manganese assets largely offsets the previous fair value uplift of $2.1 billion as per the company's listing documents.
The reduction in book value will result in lower depreciation charge, South32 said.
The fair value of the assets at 30 June 2015 is being assessed and will be informed to the market, should there be a material difference to those figures provided by BHP Billiton, ''the company said.
South32 CEO Graham Kerr said, ''The curtailment of aluminium production at Alumar and manganese alloy production at Metalloys demonstrates our commitment to maximise financial performance per share, rather than volume.''
''Our high-quality assets, cash generating capacity and strong balance sheet underpin our confidence in the outlook for our business.'' Kerr further added.
South32, which entered the market with a market capitalisation of around A$10.9 billion ($8.1 billion) in May, is now valued 11 per cent lower at A$9.7 billion due to weaker commodity prices and other global uncertainties including a slowdown in China, the world's second-largest economy, and a Greek bailout.