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1. Company Snapshot

1.a. Company Description

South32 Limited operates as a diversified metals and mining company in Australia, Southern Africa, North America, and South America.The company operates through Worsley Alumina, Hillside Aluminium, Mozal Aluminium, Brazil Alumina, Illawarra Metallurgical Coal, Eagle Downs Metallurgical Coal, Australia Manganese, South Africa Managanese, Cerro Matoso, Cannington, Hermosa, and South Africa Energy Coal segments.It has a portfolio of assets producing alumina, aluminum, bauxite, energy and metallurgical coal, manganese ore and alloy, ferronickel, silver, lead, zinc, and other base metals.


The company also exports its products.South32 Limited has a strategic alliance agreement with AusQuest Limited for exploration opportunity in gold-copper targets at the Gunanya Project.The company was formerly known as BHP Coal Holdings Pty Limited and changed its name to South32 Limited.


South32 Limited was incorporated in 2000 and is headquartered in Perth, Australia.

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1.b. Last Insights on S32

Negative drivers behind South32 Limited's recent performance include escalating aluminium tariffs, which may be a negotiating tactic rather than a long-term policy, potentially impacting sales. The company's Worsley Alumina mine development secured federal environmental approval, but mining in new bauxite areas is set to start in Q4 FY25, which may not provide immediate relief. Additionally, Australia's manganese production is projected to have decreased by 32.1% in 2024, which could negatively impact South32's operations.

1.c. Company Highlights

2. South32's Half-Year Results: Strong Financial Performance and Operational Advancements

South32 delivered a robust financial performance in the half-year results, with underlying EBITDA of $1.1 billion and a group operating margin of 28.2%. The company's underlying earnings grew to $435 million, and a fully franked ordinary dividend of $175 million was announced. Earnings per share (EPS) came in at $0.07429, beating analyst estimates of $0.06188. The strong financial performance was underpinned by improved operational efficiency and higher commodity prices.

Publication Date: Feb -18

📋 Highlights
  • Strong Financial Performance: Underlying EBITDA of $1.1 billion and a 28.2% group operating margin, with $435 million in underlying earnings growth.
  • Dividend and Capital Returns: $175 million fully franked ordinary dividend announced, alongside a $100 million increase in the capital management program.
  • Operational Expansion: 28% increase in underground ore reserves at Cannington, extending mine life by 2 years, and $65–80 million in infrastructure investment to boost production.
  • Balance Sheet Strength: Net debt of $25 million supports high-return growth projects and shareholder returns, with $5 million annual costs for Mozal care and maintenance.
  • Strategic Safety Improvements: Hazard frequency reduced, fostering a proactive safety culture, alongside $25 million allocated for low-cost heap leaching feasibility at Sierra Gorda.

Operational Highlights

The company is making significant progress in its operations, with the Taylor zinc-lead-silver project advancing on schedule. The underground ore reserve at Cannington increased by 28%, adding about 2 years of life to the underground. South32 is also pursuing growth in copper and zinc through the Ambler Metals Joint Venture in Alaska. As Graham Kerr noted, the team has done excellent work in extending the life of Cannington, and there is potential for further extension.

Valuation and Outlook

With a P/E Ratio of 45.85 and an EV/EBITDA of 16.68, the market is pricing in a certain level of growth for South32. Analysts estimate next year's revenue growth at -5.5%, indicating a potential decline in revenues. However, the company's strong balance sheet, with net debt of $25 million, and its commitment to returning value to shareholders through dividends and capital management programs, position it well for the future.

Project Updates

The Hermosa project is tracking well against budgets and timelines, with the shafts approximately 56% and 41% complete. At Sierra Gorda, the company is working to resolve issues with the fourth grinding line, and an independent review of the feasibility study is nearing completion. Mozal is planned to be put into care and maintenance due to a lack of power supply, with the estimated ongoing cost of care and maintenance being approximately $5 million per year.

Decarbonization and Future Plans

South32 is exploring options for decarbonization, particularly at Hillside, where the company is working with Eskom to secure a more balanced power solution. Graham Kerr expressed confidence in Hillside's future, citing its importance to Eskom and the significant number of jobs dependent on it in South Africa. The company is well-positioned for the future, with a series of growth projects to continue reshaping its portfolio.

3. NewsRoom

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South32 H1 Earnings Call Highlights

Feb -17

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Trilogy Metals Reports Fiscal 2025 Year-End Results and Highlights Strategic U.S. Federal Support for Domestic Critical Minerals Production

Feb -17

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South32 Board Shift Highlights Mozal Decision And Copper Growth Focus

Feb -17

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South32 Ltd (SHTLF) (H1 FY26) Earnings Call Highlights: Strong Financial Performance Amid ...

Feb -17

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A Look At South32 (ASX:S32) Valuation After A Strong Three Month Share Price Rally

Feb -16

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Does South32 (ASX:S32) Price Reflect Its Value After Recent Materials Sector Headlines

Feb -16

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South32 Ltd (SHTLF) (Half Year 2026) Earnings Call Highlights: Strong Financial Performance ...

Feb -16

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Basic Materials Roundup: Market Talk

Feb -13

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4. Business Breakdown

4.a. Revenues by Country

4.b. Revenues by Segment

5. Expected revenues mid-term growth (4.70%)

6. Segments

Hillside Aluminium

Expected Growth: 4.5%

Hillside Aluminium, a South32 Limited subsidiary, is poised to grow driven by increasing demand from automotive and construction industries, coupled with the company's focus on cost reduction and operational efficiency.

Worsley Alumina

Expected Growth: 4.5%

Increasing demand for aluminum, driven by growing usage in electric vehicles, renewable energy systems, and construction, coupled with supply constraints and Worsley Alumina's low-cost production position, are expected to drive growth.

Mozal Aluminium

Expected Growth: 5.5%

Mozal Aluminium, operated by South32 Limited, is expected to grow driven by increasing demand for aluminium in the automotive and construction industries, coupled with the smelter's low-cost, long-life operations and strategic location.

Brazil Alumina

Expected Growth: 5.4%

Strong demand from domestic and international markets, driven by infrastructure development and automotive industry growth, supports South32 Limited's Brazil Alumina segment growth.

Brazil Aluminium(BA)

Expected Growth: 4.1%

Brazil's aluminium segment growth is driven by increasing demand for electric vehicles, infrastructure development, and government initiatives to promote renewable energy sources, positioning South32 Limited as a major player in this market.

Illawarra Metallurgical Coal- Discontinued Operation

Expected Growth: 4.5%

Strong demand for metallurgical coal, driven by steel production growth in Asia, underpins South32's Illawarra coal mining operation, with a significant share of production committed to long-term contracts.

Group and Unallocated Items/Elimination

Expected Growth: 5.4%

South32 Limited’s growth is driven by its diversified portfolio of metals and minerals, strong operational performance, and strategic investments. The company’s focus on cost reduction and productivity improvements will also support its expansion.

Unallocated Joint Venture Adjustments

Expected Growth: 4.5%

South32's unallocated joint venture adjustments are expected to drive growth, fueled by increasing demand for metallurgical coal and copper, as well as the company's cost-cutting initiatives and focus on operational efficiencies.

Discontinued Operation Adjustments

Expected Growth: 4.8%

South32 Limited's discontinued operation adjustments are driven by its divestment of South Africa Energy Coal, which will reduce costs and improve profitability. The company's focus on core assets and debt reduction will also support growth.

Sierra Gorda

Expected Growth: 4.5%

South32's Sierra Gorda copper mine in Chile benefits from the country's well-established mining industry, low operating costs, and proximity to key markets. Strong demand from electric vehicle manufacturers and renewable energy infrastructure drives copper demand, supporting the segment's growth.

Cannington

Expected Growth: 4.5%

South32's Cannington operation will drive growth, fueled by increasing demand for silver and lead, strong cash flow generation, and a robust balance sheet enabling strategic investments.

Cerro Matoso

Expected Growth: 4.4%

Cerro Matoso's growth is driven by increasing nickel demand from stainless steel and electric vehicle production, coupled with supply constraints due to Indonesia's export ban. South32's focus on cost reduction and exploration will also support the mine's growth.

Australia Manganese

Expected Growth: 5.5%

South32's Australia Manganese segment is driven by increasing demand for high-grade manganese ore, coupled with the company's focus on cost reduction and operational efficiencies, positioning it for long-term growth.

South Africa Manganese

Expected Growth: 5.6%

South32's South Africa Manganese operations are expected to grow driven by increasing demand for manganese in the steel industry, combined with the operation's low-cost position and high-quality ore reserves.

7. Detailed Products

Aluminium

South32 Limited produces high-quality aluminium, a lightweight and corrosion-resistant metal used in various industries such as transportation, construction, and packaging.

Alumina

South32 Limited produces alumina, a type of aluminium oxide, which is used as a raw material in the production of aluminium.

Copper

South32 Limited produces copper, a highly conductive and ductile metal used in various industries such as electrical, construction, and consumer goods.

Metallurgical Coal

South32 Limited produces metallurgical coal, a type of coal used in the production of steel.

Manganese Ore

South32 Limited produces manganese ore, a key ingredient in the production of steel and other alloys.

Nickel

South32 Limited produces nickel, a corrosion-resistant metal used in various industries such as aerospace, automotive, and consumer goods.

Silver

South32 Limited produces silver, a highly conductive and malleable metal used in various industries such as electronics, solar panels, and jewelry.

8. South32 Limited's Porter Forces

Forces Ranking

Threat Of Substitutes

The threat of substitutes for South32 Limited is medium due to the availability of alternative metals and minerals in the market.

Bargaining Power Of Customers

The bargaining power of customers for South32 Limited is low due to the company's diversified customer base and lack of concentration.

Bargaining Power Of Suppliers

The bargaining power of suppliers for South32 Limited is medium due to the presence of multiple suppliers and the company's ability to negotiate prices.

Threat Of New Entrants

The threat of new entrants for South32 Limited is low due to the high barriers to entry in the mining industry, including significant capital requirements and regulatory hurdles.

Intensity Of Rivalry

The intensity of rivalry for South32 Limited is high due to the competitive nature of the mining industry, with many established players competing for market share.

9. SWOT Analysis

Strength

Weaknesses

Opportunities

Threats

10. Capital Structure

10.a. Balance Sheet

10.b. Weighted Average Cost of capital

Value
Debt Weight 10.65%
Debt Cost 3.95%
Equity Weight 89.35%
Equity Cost 8.39%
WACC 7.91%
Leverage 11.92%

11. Quality Control: South32 Limited passed 2 out of 9 key points

12.a Historical Valuation

12.b Price/Earnings Ratio

12.c Margin Valuation

12.d Peers Valuation

Peers Group Analysis

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South32

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Peers Metrics

12.e Scoring Insights

12.f DCF BETA

Parameters

Short Term Growth

Short term Time

Long-Term Growth

WACC

Target Price

2.31$

Current Price

2.31$

Potential

-0.00%

Expected Cash-Flows