Meet #South32: the much anticipated split-up of #BHP assets @Mineweb



So BHP Billiton shareholders approved the spin-out of
the much anticipated South32. The split-up of BHP assets is expected in
late May.

Meet South32

We take a closer look at South32’s assets.
So BHP Billiton shareholders approved the spin-out of
the much anticipated South32. The split-up of BHP assets is expected in
late May and for those who don’t have BHP’s individuals assets
memorised it begs the question: What will it look like?

Let’s take a closer look.

Clearly South32 is getting BHP’s trimmings, by and large the stuff it
doesn’t want. But that said, South32 will still be a heavyweight miner.
It will be fairly diversified – though not terribly rounded out in some
respects – with a multi-billion market cap. Its mines, smelters and
other facilities will largely cluster in in Australia and South Africa.

From a commodities point of view, South32 will noticeably lack strong
production in base metals and iron ore. It won’t have copper or iron
ore mines in the fold. BHP keeps those.

But in-house, it won’t be obviously weighted to any particular
commodity it mines. It will derive profits from alumina, aluminium,
silver, lead, zinc, manganese, nickel and coal.

A few of its mines and operations will do more of the heavy lifting,
at least given recent history and metal prices. Indeed, broadly
speaking, the operations in Australia are its lowest cost and most
profitable. The mines in South Africa, though still fairly profitable,
will be a bigger drag.

In Australia three operations, out of a group of ten, should account
for nearly 40% of  South32 profits, if recent quarters are a guide.
GEMCO (60% owned) is a large manganese producer and drove 14.4% of
profits in H1 2015 among the group of mines South32 (and thus BHP
shareholders) is destined to own. Cannington is a large silver-lead-zinc
mine and it accounted for 13.6% of profits. Thereafter Worsley, an
alumina operation, gave 10.6% of profits in H1 2015.

South32 EBITDA

In part, the importance of these mines in the portfolio is a matter
of quality. They are generally the lowest cost producers as measured by
their respective industry cost curves. Indeed, all three of the
aforementioned operations fall in the first quartile.

Moving down the list, however, the mines and operations fall farther
down the cost curve. Generally, these are the mines in South Africa.
They still make important contributions, but they tend to be somewhat
higher cost. Most fall in the second quartile. And that pinches profits.

Still the South Africa operations will be part of South32’s core. In
particular the Hillside smelter, using feed from Australia, makes a
large contribution to profits, about 14.9%. It straddles the first and
second quartiles of the cost curve in the aluminium industry. Otherwise,
and also in South Africa, South32 will have important coal and
manganese operations.

Beyond South Africa and Australia, South32 will have nickel and
aluminium/alumina assets in South America. But their importance to the
miner’s profits, at least initially, will be small.

Indeed, if South32 looks to expand, it wouldn’t surprise here, if it
beefs up operations in South America. It would diversify the group away
from Australia and South Africa geographically, as a first. And it would
also make sense given its mining weaknesses.

It lacks copper operations. So you have to think it may consider
building some muscle here. And South America – well – it’s known to
produce just a tad of the red metal.   

UNDER THE HOOD

SOUTH32’s proposed portfolio

Worsley Alumina

  • Western Australia
  • Bauxite mine and alumina refinery (86% owned)
  • 4.6 mtpa
  • Reserves 17 years
  • 295 Mt @ 31%
  • First quartile cash cost

Illawarra metallurgical coal (100%)

  • Eastern Australia
  • Three longwall mines and processing facilities
  • ROM 12 mtpa
  • Reserves vary between 2 to 25 years at the three mines
  • 208 Mt
  • Second quartile costs

GEMCO: Australia Manganese (60%)

  • Northern Australia
  • 4.8 mtpa manganese mine
  • Also manganese alloy plant (100%)
  • 11 years reserves
  • 94 Mt @ 44.6%
  • First quartile cash costs

Cannington silver-lead-zinc mine

  • Northeastern Australia
  • 3.4 mtpa underground
  • 9 year reserves
  • 20 Mt @ 237g/t Ag, 6.29% Pb, 3.95% Zn

South Africa Aluminium: Hillside(100%)

  • Smelter in East South Africa
  • 723 ktpa aluminium
  • First/second quartile cost curve
  • Mozal
  • 566 ktpa

South Africa Energy Coal (90%)

  • Four mines
  • 30 mt output
  • Reserves 6 to 23 years
  • 583mt
  • Second quartile costs

South Africa Manganese (Hotazel mine 44.4%, metalloys 60%)

  • Mine and smelter
  • 3.5 mtpa, open pit, and 1.2 mtpa underground
  • Reserves 46 years Wessels mine (69 Mt @ 42.2%) and 18 years Mamatwan (64 Mt @ 37.3%)
  • Third quartile costs

South America

  • Brazil Aluminium
  • Non-operator/non-majority owner 
  • Second quartile costs at refinery

Cerro Matoso (99%)

  • Nickel laterite mine and ferronickel smelter
  • 44kt nickel production
  • 15 year reserves
  • 24mt @ 1.1% laterite ores and 24mt @ 1.3% in stockpile
  • Second quartile costs

Meet South32 – Mineweb

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