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SOUTH32, the BHP Billiton spinoff, suffered its first setback less than a month after debuting in Johannesburg saying it may write-down the value of its 60% stake in its Samancor manganese joint venture.
This followed a delay in the restart of three of four high carbon ferromanganese furnaces at South32's Metalloys manganense alloy operation in South Africa. Shares in the company were down by less than a percent in early morning trade.
South32 said its decision was prompted by the one fifth decline in the price of ferromanganese "... and is aligned with South32’s commitment to maximise per share financial performance, rather than volume".
Commenting on the potential write-down, the company said "a review of the fair value of its interest" in Samancor was underway. The balance of the company is owned by Anglo American, but South32 is the operator of the asset.
No permanent employees would be retrenched from the facilities, it said.
"The process is expected to have implications for the fair value adjustment that is required pursuant to the conclusion of the amended and restated umbrella agreement governing the joint venture," it said.
This refers to a renegotiation between BHP Billiton and Anglo American last year ahead of the demerger of South32 in which the latter stopped consolidating the joint venture and subsequently wrote up the book value of its 60% stake to $3bn.
South32 also said that it was in negotiations with Transnet, the state-owned transport and logistics company, regarding securing sufficient access "... to export additional manganese ore from its South African mining operations" that would not be used by Metalloys. However, export volumes of manganese ore would remain "dependent" on market conditions, it added.
Samancor Manganese is the world’s largest producer of manganese with operations in South Africa and Australia.
In the first half of the 2015 financial year, the Metalloys plant produced a pre-tax loss of $6m and was likely to produce further losses following the weakening in the ferromanganese price since. Macquarie Research said losses from the operation were likey to continue into 2016.
South32’s share of associate earnings from Samancor accounts for less than 7% of group earnings in the 2015 and 2016 financial year, and the South African manganese business accounts for less than 4% of the net present value for S32, said Macquarie.
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- [Editor:Sophie]
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