South32 suffers US$1.7 bn impairment

South32, the spin-off of mining giant BHP Billiton, posted underlying first half earnings of US$26mn. The figure, for the six months ended December 31, compares with underlying earnings of US$460mn a year earlier, the firm said in a release. The new company took operational control of its assets a year ago and was successfully demerged from BHP Billiton on May 25 2015.

Revenue came in at US$2.98bn, compared with US$4.09bn the year before, while underlying Ebitda fell to US$542mn from US$1.13bn.

"Lower commodity prices reduced revenue by US$1.00bn, although this was partially offset by a stronger US dollar (US$401mn) and lower price-linked costs (US$94mn). Half year production records were achieved at Worsley Alumina, Australia Manganese (ore) and Cannington (zinc), while power sales at Brazil Alumina contributed US$51mn to underlying Ebitda."

Brazil saleable alumina production remained flat at 1.32 Mt in the period.

At Brazil Alumina, the firm first curtailed activity at its smelter in July 2013 before suspending all aluminum production in March 2015. "With the economics unlikely to support the recommencement of smelting activity we sold forward power for the 2017 calendar year and served termination notice on our contract with Eletronorte for the remaining years of the contract," the company said.

Write-downs

In the period, South32 recognized a statutory loss of US$1.7bn, including non-cash impairment related charges of US$1.7bn.

"This included a US$916mn impairment at Australia Manganese; a US$97mn impairment at South Africa Manganese; a US$64mn impairment at Manganese Marketing; a US$518mn impairment at South Africa Energy Coal, including US$76mn relating to available for sale investments; a US$97mn impairment at Brazil Alumina; and the US$126mn de-recognition of deferred tax assets at South Africa Energy Coal. The tax benefit associated with these non-cash impairments is US$174mn," the release said.

South32's Latin American assets include a 14.8 per cent interest in the Mineração Rio do Norte bauxite mine as well as a 36 per cent interest in the Alumar alumina refinery and a 40 per cent interest in the Alumar aluminum smelter, all in Brazil.

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