Digging in
1H23 RESULT
Need To Know
- Lower commodity prices are rebounding in 2H23
- Project expansions and organic production increases still intact
- Cost control important as inflation, energy, raw materials all under pressure
- Interim dividend US4.9cps fully franked, payment date 6 April
Lower commodity prices mean a lower profit for most commodity producers. South32’s interim result was operationally strong in the face of higher inflation and costs.
Underlying EBITDA of US$1,364m on increased production (12%) and new investments in Sierra Gorda and Mozal Aluminium (US$224m contribution) shaped the company for a sturdy full year. S32 paid US$927m to shareholders through dividends (US$784m) and the on-going buyback (US$143m). FY23 production guidance is unchanged and will deliver another 6% increment.
Lower commodity prices for aluminium, metallurgical coal, alumina, zinc and manganese subtracted US$299m from group EBITDA, while higher costs (-US$234m), inflation (-US$127m) and lower sales volumes (-US$184m) more than offset a US$185m FX benefit.
The Hermosa project (Arizona) is due for FID (final investment decision) on the Taylor deposit mid-year. The same project’s Clark deposit will supply battery-grade manganese into the North American EV supply chain.
Investment View
Commodity prices detracted from the 1H23 result, but a rebound so far in 2H23 due to China re-opening and some supply disruptions have reversed the trend. Costs are still under pressure (energy, caustic soda) with a decent chunk (~US$176m) beyond the company’s control.
S32 retains a strong balance sheet with leverage at just 0.2x and plenty of liquidity on hand (US$1.6bn cash plus facilities up to US$1.4bn). FY23f capex guidance has been reduced by US$105m, with 2H23 capex around US$659m (US$524m 1H23).
S32 continues to appeal on valuation metrics where the PER is heading under 10x and EV/EBITDA is 5x FY23f earnings. Margins are still under pressure from rising costs, but if commodity prices nudge forward again, this won’t matter so much.
Stock Overview
Share Price
Company Overview
South32 is a global commodities producer of bauxite, alumina, aluminium, copper, zinc, and nickel. It has operations in Australia, South Africa, North America and South America. Its main focus is base metals.
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