The Metalloys plant was once a source of pride in BHP, the world’s largest resources company. Then BHP spun out its SA and other assets into the newly formed South32 — and didn’t look back at SA.
Metalloys, the manganese smelting plant in Meyerton, was described by BHP in 2014 as one of the world’s largest manganese alloy producers in the world. BHP invested R1bn in a new furnace at Metalloys a year earlier. The plant had capacity of 410,000 tonnes a year of high-carbon ferromanganese and 90,000 tonnes a year of medium-carbon ferromanganese.
However, tough market conditions for manganese alloys and a fatality in 2015 meant the reduction of operating furnaces to one from four and the plant has not recovered.
The extraordinary hike in electricity prices by Eskom of more than 520% since 2006, the variability of supply as the power utility struggles with an old generating fleet and bringing new units into production in an atmosphere of misgovernance and corruption, has all but sealed Metalloys’ fate.
Unless there’s a buyer with the appetite for risk, particularly given the above-inflation increases Eskom is passing onto its customers for a poorly managed business and the unpredictable nature of supply and future costs, Metalloys is probably destined for closure.
While South32 stresses the review of its manganese alloy businesses in SA and Australia later in 2019, the decision to close, sell or mothball will come at around the time it exits its SA thermal coal business.
As much as President Cyril Ramaphosa wants to attract investment, any potential investor would look long and hard at the electricity situation in SA and be very cautious.
If investors the size of South32 are drawing a line under what should have been a gem of an asset at Metalloys then there’s a clear if unspoken message that the government would do well to listen to and act on.
What is Investec Property Fund’s strategy Down Under?
Investec Property Fund (IPF), the real estate investment trust (Reit) listed by the financial services group Investec back in 2011, needs to make a call on Australia.
It perhaps needs to spend more in the land Down Under as it looks to hedge against the weak rand, especially considering how well the investment there has done.
Currently, the company owns nearly 21% of Investec Australia Property Fund (IAPF), an investment that has paid off over the past six years, paying dividends in Australian dollars.
Its capital growth has also been impressive as IPF, this week, showed in its financial results for the year to end-March. Its investment in IAPF had climbed 21% in value to R1.27bn from R1bn at the same time last year.
Nevertheless, R1.27bn is a relatively small portion of total investments of R20.9bn. Why has IPF not invested more in IAPF or in other Australian companies? Fund managers have been increasingly asking why IPF hasn’t committed more to Australia given its strong track record there.
As much as R17bn of IPF’s properties are in SA while only R3.18bn of the portfolio is in Australia, Europe and the UK.
In fact, IPF says it is prepared to sell down its stake in IAPF by half and would use the proceeds on an “earnings and net asset value enhancing basis”.
IPF says Europe is offering the most attractive returns on capital at the moment. That may well be the case, but hopefully it will not be at the expense of missing opportunities in Australia. The company’s balance sheet is in a healthy position with a loan-to-value ratio in the mid-30s and cash on hand to make acquisitions without selling assets.
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