South32 CEO Graham Kerr
MELBOURNE – South32, the diversified miner that’s cutting its global workforce on lower commodity prices, says its loss-making and strike-threatened Colombian nickel asset must deliver a plan to return to profits in the coming fiscal year to remain in operation.
Cerro Matoso is facing a deadline of July 2017 to demonstrate how it’ll begin to improve cash flow, CEO Graham Kerr said in an interview last week in Melbourne. The Perth-based producer is continuing talks with union members at the asset to avert a planned strike this month amid a dispute over a wage offer, he said.
“If they are not cash flow positive, if they can’t show me a plan to be cash flow positive, well we shouldn’t be running,” Kerr said. “We can’t cross-subsidise across the group, so if we can’t restructure if a way that makes sense, well then we won’t produce.”
Even as nickel prices have rebounded about 10% since touching a 13-year low in February, about 70% of global output is still unprofitable, according to GMK Norilsk Nickel PJSC, one of the world’s largest producers. Cerro Matoso is South32’s remaining asset of concern, as other loss-making units show progress toward a recovery, Kerr said.
ANGLO ASSETS
Operating costs at Cerro Matoso were $4.43/lb in the six months to December 31, compared with a realised sale price of $4.30/lb, South32 filings show. Nickel for delivery in three months fell 0.2% to $8 460 a metric ton ($3.84/lb) on the London Metal Exchange at 2:36 p.m. in Sydney.
Prices of manganese and alumina, two key earners for South32, are likely to decline in the second half, as an early 2016 rally for commodities stoked by restocking and China’s commitments to support growth begins to fizzle, Kerr said.
The producer outlined plans earlier this year to cut costs and adjust output across its alumina, metallurgical coal, nickel and manganese units. In addition to previously announced plans to cut its global workforce by about 1 750 jobs, South32 will cut 270 corporate and regional posts in Australia, Singapore and South Africa and won’t fill 144 vacant positions, Kerr told reporters in Melbourne.
“The biggest challenge for the industry is still that there’s excess supply,” Kerr said in the interview. “The demand rates out of China aren’t terrible, the issue is more that the industry has built overcapacity, and that needs restructuring to go away.”
South32, listed last May after BHP Billiton shed a collection of unwanted assets to focus on a smaller number of materials, has reviewed potential acquisitions including Anglo American Australian coal mines and the producer’s niobium and phosphate unit sold to China Molybdenum Co. for $1.5-billion. Anglo’s coal mines aren’t a good fit for South32 and the producer will continue to be patient, Kerr said.
The producer also won’t overpay to take an opportunity to add Anglo’s 40% stake in their manganese joint venture, the world’s biggest producer, he said. Japanese trading houses Itochu and Mitsui & Co had separately bid for the stake in the venture, people with knowledge of the matter said in April.
“It’s still down to price,” Kerr said. “They are attractive assets, I expect it’ll be a competitive process.”