South32 Ltd., the diversified miner that’s cutting its global workforce on lower commodity prices, says its loss-making and strike-threatened Colombian nickel asset must deliver a plan to return to profits in the coming fiscal year to remain in operation.
Cerro Matoso is facing a deadline of July 2017 to demonstrate how it’ll begin to improve cash flow, Chief Executive Officer Graham Kerr said in an interview Thursday in Melbourne. The Perth-based producer is continuing talks with union members at the asset to avert a planned strike this month amid a dispute over a wage offer, he said.
“If they are not cash flow positive, if they can’t show me a plan to be cash flow positive, well we shouldn’t be running,” Kerr said. “We can’t cross-subsidize across the group, so if we can’t restructure if a way that makes sense, well then we won’t produce.”
Even as nickel prices have rebounded about 10 percent since touching a 13-year low in February, about 70 percent of global output is still unprofitable, according to GMK Norilsk Nickel PJSC, one of the world’s largest producers. Cerro Matoso is South32’s remaining asset of concern, as other loss-making units show progress toward a recovery, Kerr said.
Operating costs at Cerro Matoso were $4.43 a pound in the six months to December 31, compared with a realized sale price of $4.30 a pound, South32 filings show. Nickel for delivery in three months fell 0.2 percent to $8,460 a metric ton ($3.84 a pound) on the London Metal Exchange at 2:36 p.m. in Sydney.
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