South32 Dives On $818M Impairment As Alumina And Nickel Assets Disappoint

South32 SHTLF shares plummeted after the company announced an $818 million impairment charge for two important assets.

At last check Monday, the company’s stock was down 11.13%, trading at $10.02 per share.

The Worsley alumina project, located southwest of Perth, includes the Boddington bauxite mining and alumina refining operations. Two weeks ago, the Western Australian government received environmental approval to extend its operational life by 15 years, but it imposed stringent conditions.

Environmental concerns regarding the Jarrah forests and local wildlife have led South32 to describe the new operating environment as presenting “significant operating challenges” that could jeopardize the refinery’s future.

The company is currently appealing these restrictions, but increased uncertainty resulted in a $554 million impairment.

The Cerro Matoso nickel project in Colombia is another significant asset for South32. The impairment charge of $264 million reflects challenges in the global nickel market and operational difficulties for Australian companies, even outside the domestic market.

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Cerro Matoso has been a key player in South32’s portfolio, contributing substantially to its nickel production. However, ongoing market volatility and cost pressures have forced the company to reassess the value of this project.

In addition to the impairment charges, South32 reported a 14% decline in copper production, down to 608,000 tons, for the quarter ending June 30. This decrease in production is a notable setback for the company, which has been focusing on copper as a key growth area.

Despite the setbacks, the company is making progress in streamlining its portfolio. A consortium led by Singapore’s Golden Energy and Resources (GEAR) has secured $850 million to purchase South32’s Australian coking coal assets. Sources told Reuters that the consortium, which includes GEAR and the privately held Australian coal company M Resources, plans to leverage private credit to complete the acquisition. GEAR, majority-owned by Indonesia’s Widjaja family, will hold a 70% stake in the consortium, with M Resources owning the remainder.

This deal, first announced in February with a total value of $1.65 billion, marks South32’s exit from the coal business as it pivots towards expanding its copper and zinc operations.

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