Soggy quarter
3Q23 PRODUCTION
Need To Know
- FY23 production guidance reduced at Cannington, Illawarra due to wet weather
- Higher commodity prices achieved, particularly hard coking coal and manganese
- Cost guidance unchanged
Wet weather caused sufficient interruption to operations at Cannington and Illawarra to lower full year guidance. Elsewhere, production is on track to benefit from stronger commodity prices.
Cannington and Illawarra. The zinc/silver/lead mine at Cannington experienced severe wet weather in the period causing S32 to reduce full year production guidance by 6%. Challenging strata conditions at the longwall at the Appin metallurgical coal mine has also resulted in lower full year production guidance of 7%.
Aluminium. Group production of aluminium increased 15% year-to-date with a ramp up of activity at Brazil Aluminium and increased ownership of Hillside Aluminium. Mozal Aluminium did have some issues which have lowered full year output guidance by 8%.
Copper. The new Sierra Gorda operation delivered the expected volume growth and is contributing to group growth.
Nickel production at Cerro Matoso will be down 7% in FY23 after less high-grade ore was processed in the quarter.
Australian manganese increased production by 6% adding to the FY23 guidance by 3%.
Investment View
The third quarter production was certainly a mixed bag, but on a group copper equivalent basis, production increased by 7% to record levels. S32 continues to shift its production profile towards commodities needed in a low-carbon future. Projects such as Hermosa and Chita Valley copper are cases in point.
The balance sheet is in great condition as the buyback continues (US$128m still to go).
The muddled set of 3Q production numbers may have disappointed the market, but firming commodity prices should more than offset this when the financial results are reported.
S32 noted that operating unit costs are largely unchanged which is a positive comment considering costs have recently been under pressure. If steady costs and higher commodity prices can be sustained to the year end, investors may be rewarded for their patience. The lower share price has S32 on a FY24f PE ratio of 8.7x consensus EPS and a dividend yield at 5.7%. That is beginning to look enticing.
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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