The South32 Ltd (ASX: S32) share price is rising after the mining giant completed the sale of one of its coal operations for huge loss.
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The share price upswing comes after the company completed its divestment from coal mining in South Africa.
Let’s take a closer look at today’s announcement.
What’s affecting the South32 share price?
In a statement to the ASX, South32 says it is transferring its “100% shareholding in South32 SA Coal Holdings Proprietary Limited (South Africa Energy Coal) to Seriti Resources Holdings Proprietary Limited (Seriti) and two trusts for the benefit of employees and communities.” The company expects to complete the transaction by 1 June this year.
South32 says it expects to lose between US$125 million and US$175 million from the sale. Net cash balance for the group will reduce by US$180 million “to reflect the recognition of the vendor support package being provided to Seriti.”
As reported on 1 April, this support package includes a US$50 million loan facility and US$200 million over 10 years to fund rehabilitation works at the site.
Investors seemingly do not mind this incurred loss, judging by today’s South32 share price movement. The company also advised that the loss of sale will be excluded from underlying earnings in its full-year financial report for this year.
While South32 is rushing to exit the South African coal market, it is attempting to ratchet up production domestically. The mining giant is currently appealing a decision by the NSW Independent Planning Commission to reject an extension of its Dendrobium coal mine in the Illawarra.
South32 CEO Graham Kerr said:
When we made the decision to exit South Africa Energy Coal, we recognised the business would continue to play an important role in supplying South Africa’s energy needs for years to come.
With this in mind our vision was two-fold. First, we wanted to ensure that the business would be sustainable for the long-term, for the benefit of its employees, customers and local communities. Of equal importance was our objective for it to become a black-owned and operated business, consistent with South Africa’s transformation agenda. We believe Seriti is the right owner of South Africa Energy Coal and that the additional financial support package we have provided will underpin the future sustainability of the business.
For South32, completion of the divestment is an important milestone that will see us significantly simplify our business, reduce our capital intensity and improve our underlying operating margins. Looking forward, we remain focussed on reshaping our portfolio with a bias to the base metals important for a low carbon future by advancing our development options in North America and continuing to invest in greenfield exploration.
South32 share price snapshot
Over the past 12 months, the South32 share price has increased by around 60%. Only last week, the company hit a 52-week high of $3.09 per share.
South32 has a market capitalisation of approximately $14.1 billion.
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Motley Fool contributor Marc Sidarous has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.