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South32 Open to Offers for Colombian Nickel Mine

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02/16/2017 | 03:07am EST
By Rhiannon Hoyle 

SYDNEY--Mining company South32 Ltd. was born out of BHP Billiton Ltd.'s desire to rid itself of assets ranging from alumina refineries to manganese mines. Soon, South32 may consider doing some housekeeping of its own.

In an interview, Chief Executive Graham Kerr said the company was open to offers for its Cerro Matoso nickel mine in Colombia because it was an odd fit in a portfolio that spans three continents across the Southern Hemisphere. He also questioned whether coal pits in South Africa had a long-term place in the company's portfolio as more production is heading to domestic power plants than markets overseas.

Global miners are sharpening their focus on shareholder value even as rising commodity prices strengthen balance sheets after several tough years. South32 ended December with $859 million in net cash, up from $312 million six months earlier.

That has prompted many investors to speculate that South32 will aggressively seek acquisitions, especially in base metals, while other mining companies focus on cutting debt.

However, Mr. Kerr signaled the company continues to take a cautious approach and its future could be owning fewer assets rather than more. One deal that looks appealing is Anglo American PLC's minority stakes in its manganese operations, but its London-listed rival appears increasingly reluctant to sell operations.

"You don't have to be the biggest to be the best," Mr. Kerr said Thursday. "We don't see any compelling M&A acquisition at the moment," other than some possible small exploration ventures.

Instead, the Perth-based miner is likely to consider capital management--possibly an on-market buyback of shares--in the months ahead. "We don't believe in holding excess cash," he said.

With big deals off the table for now, South32 might look to carve out some operations that it inherited from BHP.

"The slightly odd fit is probably Cerro Matoso," a mine and smelter in the Córdoba area of northern Colombia, Mr. Kerr said. Most of South32's businesses are in Australia and South Africa.

South32 isn't currently marketing Cerro Matoso and has focused on cutting costs and boosting production there over the past year. "If someone is willing to come and address us to offer some dollars that compensate for that, we would be interested in talking to them," Mr. Kerr said.

South32 was created to house operations--including manganese and bauxite mines--that struggled to attract investment under BHP, which wanted to focus on expanding its oil, iron ore and copper businesses. The spinoff was one of the biggest breakups in mining history.

On Thursday, the company said it swung to a net profit of $620 million for the six months through December from a year-earlier loss $1.75 billion. In the year-earlier period, it recorded about $1.7 billion in impairment charges.

Among its operations, Cerro Matoso contributed about 5% of revenue in the six months through December and it recorded a small underlying loss. South32's coal mining operations in South Africa--one of the country's top domestic suppliers and exporters of coal used to make electricity--accounted for about 15% of revenue and underlying earnings before interest and tax in the same period.

Write to Rhiannon Hoyle at rhiannon.hoyle@wsj.com

Stocks mentioned in the article
ChangeLast1st jan.
ALUMINA LIMITED -1.39% 2.13 End-of-day quote.-3.48%
DOW JONES AFRICA TITANS 50 INDEX -0.84% 512.64 Delayed Quote.-3.69%
DOW JONES SOUTH AFRICA(ZAR) -0.59% 1713.8 Delayed Quote.-4.45%
GOLD -0.58% 1645.02 Delayed Quote.9.78%
LME COPPER CASH -0.27% 5730 End-of-day quote.-7.06%
LME NICKEL CASH -0.12% 12685 End-of-day quote.-9.88%
S&P AFRICA 40 INDEX -1.14% 160.25 Delayed Quote.-4.10%
SILVER -2.33% 18.2 Delayed Quote.4.76%
WTI -2.62% 50.06 Delayed Quote.-12.86%
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