South32 Slips After Cloudy Outlook Heightens Caution

August 2, 2024
4:22 am
Stock Piper Team

Key Highlights

South32 Ltd (ASX: S32) share price has dropped by 10% to $3.09 after a cautious forward guidance, despite satisfactory Q4 performance.
The share price has decreased by 16% over the past 12 months.

Who is South32?

South32 is a mining and metals company headquartered in Perth, Western Australia. It was spun off from BHP Billiton on May 18, 2015. The company is listed on the Australian Securities Exchange, with secondary listings on the Johannesburg and London Stock Exchanges.

In the three months ending June 30, South32 reported a 10% quarter-over-quarter increase in copper production, reaching 15.3kt. The company achieved 98% of its copper production target for FY 2024 with an annual output of 60.8kt. Aluminum production remained stable, with notable contributions from Mozal Aluminium, Brazil Aluminium, and record outputs at Hillside Aluminium. Despite a brief bauxite conveyor failure at Worsley Alumina, production levels were sustained, aided by increased plant availability at Brazil Alumina. Additionally, Cannington’s payable zinc equivalent output rose by 10% for FY 2024, bolstered by higher metal grades.

FY 2025 Guidance Downgraded

South32 has revised its FY 2025 guidance, lowering its projections: alumina production is down by 5%, copper equivalent from Sierra Gorda by 7%, and zinc equivalent from Cannington by 9%. The company also announced pre-tax impairment charges of approximately US$554 million for Worsley Alumina and US$264 million for Cerro Matoso.

CEO Graham Kerr commented on the results: "We delivered another quarter of improved operating performance, achieving sequentially higher volumes across most of our operations and remaining on track to meet FY24 operating unit cost guidance. Our performance allowed us to capitalise on higher commodity prices, increase sales volumes, and release working capital, boosting cash generation in the quarter. The sale of Illawarra Metallurgical Coal is expected to be completed later this quarter, further strengthening our balance sheet, simplifying our business, and unlocking capital for high-quality development projects in zinc and copper."

Pipeline Development Projects

South32 continues to focus on pipeline development and early-stage exploration projects, aiming to reshape and enhance its portfolio for long-term value. The company is actively expanding its exposure to metals crucial for a low-carbon future, with over 25 active exploration programs worldwide.

Current exploration projects include:

Farm-in agreements with Encounter Resources for copper and zinc projects in Australia's Northern Territory.
A strategic partnership with AusQuest to develop high-potential exploration prospects, including copper, zinc, and nickel in Australia.
A deal with Adventus Mining Corporation for lead-silver, zinc, and carbonate-hosted 'Irish Type' prospects in Ireland.
Option agreements for copper and other base metal projects in the United States with Bronco Creek Exploration.
A joint venture with Minsud Resources to explore the Chita Valley copper, molybdenum, silver, and gold deposits in Argentina.
An earn-in agreement with Sable Resources to explore the Don Julio copper and gold property in Argentina.

Despite positive results in Q4 2023, South32 has faced challenges, reflected in its year-to-date (-10.51%), one-year (-24.2%), and five-year (-5.7%) stock performance. While past performance does not guarantee future results, South32's diverse project portfolio presents potential opportunities to reverse its recent downturn. The company will need to demonstrate its ability to deliver consistent value to investors amidst market uncertainties.