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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. Strong Start to the Year for South32

South32 has reported a strong start to the year, with underlying EBITDA increasing by 44% to $1 billion and underlying earnings rising to $375 million. The company has also made significant progress in reducing net debt, which now stands at $47 million, down $715 million from the previous period. Graham Kerr, Managing Director, highlighted the company's focus on driving cost performance, with lower operating unit costs expected in the second half of FY '25.

Publication Date: Feb -22

📋 Highlights
  • Strong Start to the Year: - Underlying EBITDA increased by 44% to $1 billion, and underlying earnings rose to $375 million, with net debt reduced by $715 million to $47 million.
  • Operational Improvements: - Aluminum production increased by 5%, copper equivalent production at Sierra Gorda rose by 21%, and production guidance was maintained across operations except for Mozal Aluminium due to civil unrest in Mozambique.
  • Cost Performance: - Lower operating unit costs are expected in the second half of FY '25, with a focus on driving cost performance, and a fully franked interim ordinary dividend of $154 million at $0.034 per share was announced.
  • Investment in Critical Minerals: - The company is investing in critical minerals, including the large-scale, long-life Tailor zinc-lead-silver project at Hermosa in Arizona, and progressing exploration programs to unlock value across Hermosa's highly prospective regional land package.
  • Capital Management: - The company has a capital management framework in place, with $171 million remaining to be returned to shareholders, and a priority to maintain a conservative net debt range of $0 to $500 million.

Operational Performance

The company has reported a 5% increase in aluminum production, while copper equivalent production at Sierra Gorda has risen by 21%. Production guidance has been maintained across most operations, except for Mozal Aluminium, where civil unrest in Mozambique has led to an update. The company has received primary state and federal environmental approvals for the Worsley mine development project, which will enable access to new bauxite mining areas expected to sustain production to at least FY '36.

Capital Management and Dividend

South32 has announced a fully franked interim ordinary dividend of $154 million at $0.034 per share and will continue its capital management program with $171 million remaining to be returned to shareholders. The company's priority is to maintain a conservative net debt range of $0 to $500 million, and it expects to see stronger cash flow in the second half as working capital unwinds.

Valuation

With a price-to-earnings ratio of 202.45 and an enterprise value to EBITDA ratio of 7.88, South32's valuation appears rich. However, the company's strong balance sheet and growth pipeline, including significant opportunities for zinc and copper, may support the current valuation. The dividend yield of 1.39% and free cash flow yield of -3.8% suggest that the market is pricing in significant growth expectations.

Outlook

Analyst estimates suggest revenues growth of 3.0% next year. With the company's focus on driving cost performance and its growth pipeline, South32 is well-positioned to deliver on these expectations. As Graham Kerr noted, "Our team has done a good job battling headwinds and securing approvals at Worsley, and we should see benefits within the next 12-18 months."

3. NewsRoom

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What Do South32’s Recent Share Swings Mean for Its True Value in 2025?

Nov -26

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Trilogy Metals vs. NioCorp: Which Mining Stock is a Smart Buy?

Nov -24

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Trilogy Metals Surges 243.1% YTD: Should Investors Ride the Rally?

Nov -18

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Emerson Selected to Automate South32's Hermosa Project, Driving Efficiencies, Minimizing Environmental Impact

Nov -17

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Can Ambler Metals' Growth Prospects Drive Trilogy's Momentum?

Nov -10

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Is There an Opportunity in South32 After Global Commodities Surge in 2025?

Oct -09

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US Government to buy 10% stake in Trilogy Metals

Oct -07

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Trilogy Metals stock explodes on news of 10% stake by Trump admin and EO ordering permits for Alaska road

Oct -07

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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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Peers Metrics

12.e Scoring Insights

12.f DCF BETA

Parameters

Short Term Growth

Short term Time

Long-Term Growth

WACC

Target Price

1.72$

Current Price

1.72$

Potential

-0.00%

Expected Cash-Flows