Shiny side up
4Q23 PRODUCTION
Need To Know
- Softer commodity prices detract from good production year.
- US$1.3bn non-cash impairment of Taylor Deposit (Hermosa Project) but Mineral Resource upgraded.
- Storefront of global energy transition commodities remains attractive.
Investment Implications
Record production output in aluminium, manganese plus base metals production up 17% is a good set of figures for South32. Even with commodity prices easing back from elevated levels last year, the company should still report a good annual result in August.
Aluminium production increased 14% in FY23 while the alumina refineries were hampered by June quarter outages. FY24 guidance for the latter is unchanged. Alumina prices declined 13% across the year, aluminium prices were -20% in FY23.
Adding the Sierra Gorda copper acquisition (S32 45%, non-operated) has boosted base metal production by 17% in FY23 to complement the Cannington zinc-lead-silver and Cerro Matoso nickel operations.
Improved longwall performance helped Illawarra met coal to a sizeable June quarter boost and an achieved FY23 guidance output. Met coal prices were down -27% in FY23.
The Hermosa Project contains two distinct projects at this point – Taylor and Clark. S32 upgraded the Taylor deposit Mineral Resource to 153mt averaging 3.53% zinc, 3.83% lead and 77g/t silver. The deposit remains open in several directions. The US$1.3bn non-cash impairment of the Taylor deposit (carrying value now US$1bn) reflects various COVID-19 delays and dewatering requirements.
S32 noted FY23 depreciation would be about US$920m and net finance costs would be around US$190m.
The company paid just over US$1bn in ordinary and special dividends in FY23 plus US$218m in share repurchases at an average price of $3.97 per share. The buyback is 96% complete.
Investment View
Putting soft commodity prices to one side, S32 has a geographically diverse portfolio of high quality base metal assets that now also extends to copper. The long term demand theme for these metals is very positive meaning that S32 will continue to generate attractive earnings growth and is prepared to reward shareholders along the way.
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.
Disclaimers and Disclosures
Issuer
The information and opinions contained within Sandstone Insights Research were prepared by MST Financial Services Pty Ltd (ABN 54 617 475 180, AFSL 500557) ("MST").
Reliance
Whilst MST make every effort to use reliable, comprehensive information in the construction of its reports, MST make no representation, warranty or undertaking of the accuracy, timeliness or completeness of information in this report. Save for any statutory liability that cannot be excluded, MST and MST employees, representative and agents shall not be liable (whether in negligence or otherwise) for any error or inaccuracy in, or omission from, this advice or any resulting loss suffered by the recipient or any other person.
General Advice
Any advice contained within Sandstone Insights Research is general advice only and has been prepared without taking into account any person’s objectives, financial situation or needs. Any person, before acting on any advice contained within Sandstone Insights Research, should first consider consulting with a financial adviser to assess whether that advice is appropriate for their objectives, financial situation and needs.
General Disclosures
This report should be read in conjunction with MST Disclaimers and Disclosures and is published in accordance with MST Conflict Management Policy which are available on the MST website: https://www.sandstoneinsights.com.au.
Currency of Research
The recommendations made in a Sandstone Insights Research report are current as of the publication date. If you are reading a report materially after publication, it is likely that circumstances will have changed and at least some aspects of the analysis may no longer hold.
Access and Use
Any access to or use of Sandstone Insights Research is subject to the Terms of Use. By accessing or using Sandstone Insights Research you hereby agree to be bound by our Terms and Conditions and hereby liable for any monies due in payment of accessing this service. In addition you consent to us collecting and using your personal data (including cookies) in accordance with MST Privacy Policy, including for the purpose of a) setting your preferences and b) collecting readership data so MST may deliver an improved and personalised service to you. If you do not agree to MST Terms of Use and/or if you do not wish to consent to MST use of your personal data, please do not access this service.
Equities Research Methodology
Please click here for information about MST equities research methodology.
Related Reports
Now for the hard part
FY23 result. An extraordinary year for PLS in terms of the cash and earnings generated by the combination of higher production and elevated commodity prices.
Milling about
A record year of cash earnings has prompted the Board to extend the buyback and lift the final dividend for shareholders.
Backyard cookup
Mineral Resources has effectively swapped out the downstream China risk to develop lithium battery chemicals with a more domestic pathway forward. This is likely to take longer and perhaps may rely on government support.