Perth-based mineral resources producer South32 said Thursday it will restart mining at the South African mines operated by its 60%-owned Samancor Manganese with immediate effect, but will slash manganese ore production of the joint venture by about 900,000 mt/year until the end of fiscal 2016-2017 (July-June).
Samancor's manganese ore production was suspended since November last year, as operator South32 and its partner Anglo American carried out a strategic review on the viability of the operations amid a sharp decline in global manganese ore and alloys prices.
The Samancor operations are located in Hotazel, Northern Cape province. Ore at Hotazel is accessed from the Wessels underground mine and the Mamatwan open-cast mine. The mines are integrated with the Metalloys smelter, which processes manganese ore for exports.
REMOVE 900,000 MT/YEAR OVER FISCAL 2015-2017
As part of the outcome of the strategic review, South32 announced Thursday that the Hotazel mines will ramp up the saleable ore production rate to around 2.9 million mt/year over fiscal 2015-2016 and fiscal 2016-2017, subject to market conditions.
This means the BHP Billiton-spin off plans to take 900,000 mt/year, or 23%, of saleable production out of the market for the foreseeable future.
During this period, the Wessels mine is expected to cut saleable manganese ore production by 36% to 740,000 mt/year and Mamatwan will reduce output by about 18% to 2.2 million mt/year, South32 added.
The three-month suspension in mining by Samancor already removed about 700,000 mt of manganese ore production from the global supply chain, South32 noted, adding that inventories at the Hotazel mines have declined substantially as a result.
South32 reported 1.68 million mt of attributable manganese ore output from the Samancor joint venture in its pro-forma financial report for fiscal 2014-2015 (July-June), which is equivalent to a production rate of 2.8 million mt/year.
KEEPING METALLOY SMELTER'S REDUCED OUTPUT RATE
The Metalloys smelter will continue to operate just one of its four furnaces, South32 said. The production cut arrangement at the Metalloys smelter has been in place since June last year in response to the challenging market conditions.
About 620 Samancor employees will be made redundant as a result of the strategic review to restructure the joint venture.
However, South32 will accelerate the second phase development of the Central Block project at Wessels, which will enable mining to relocate closer to critical infrastructure and reduce cycle times.
With development of Central Block's second phase 78% completed, the base metals miner is planning its commissioning in July this year.
As a result of a downward revision to forecast commodity demand and prices, South32 also advises that it expects to book pre-tax, non-cash charges of about $1.7 billion when it reports its December 2015 half-year financial results to be released on February 25.
Highlighting the importance of the Samancor strategic review, South32 CEO Graham Kerr said it will allow the resources conglomerate to "re-base manganese ore production at a significantly lower level while reducing Rand-denominated mine gate costs by a commensurate amount.
When combined with the restructuring initiatives that are currently being finalized at many operations across our portfolio, we expect to further strengthen our financial position and increase our cash generating capacity through the cycle."
Following the restructure of the South African manganese operation, South32 is also finalizing plans to "deliver a meaningful reduction in costs" at the Illawarra Metallurgical Coal, Cerro Matoso, Worsley Alumina and Australia Manganese operations.
These initiatives are expected to result in a substantial reduction in employee numbers during the remainder of fiscal 2015-2016 and will be detailed in the December 2015 half year financial results announcement, the company forewarned.
