South32 Not Planning to Restart Idled Aluminium Capacity Before 2018

Australian metals miner South32 indicated on Thursday that it does not expect to reopen idled capacity at its aluminium and manganese operations in southern Africa in the course of the next two years. The firm idled the capacity in question due to a combination of depressed prices and an unreliable power supply in the region.

South32’s CEO Graham Kerr said that the almost two dozen pots idled at the Hillside smelter in Richards Bay, KwaZulu-Natal, South Africa have been relined and stand ready to return to production if and when the situation supports it.

Kerr indicated that electrical blackouts in the Northern Cape have dropped to only about once every other month, which is significantly less than in the past. However, thanks to the volatility of manganese alloy (which include popular aluminium alloys 3004 and 3104), bringing idled capacity back online is difficult.

He went on to say that prices must remain at a reliably higher level for expanding capacity to make sense. In addition, Malaysia recently brought new, lower-cost capacity online, undercutting South African capacity that is largely older and less energy efficient.

Southern Africa accounts for over one-quarter of South32’s underlying earnings, contributing NZ$138 million in the first five months of 2016, but down from NZ$575 million last year. The firm’s bottom line was impacted by one-off costs and, like the rest of the industry, a challenging commodities market, but it has still delivered on promises made at the time it was spun off to cut costs. To date, it has trimmed NZ$386 million of controllable cost savings by increasing labor productivity, decreasing reliance upon outside consultants, cutting procurement and logistical costs, and improving overall energy efficiency.

South32 delivered NZ$597 million of free cash flow in the period, allowing it to declare a dividend of US$0.01 per share.

Based in Perth, Western Australia, South32 began last summer as a spin-off of BHP Billiton. The firm operates mines in Australia and South Africa, and markets aluminium, manganese, silver, zinc, lead, nickel, coking coal, and thermal coal.

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