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South 32 – Quarterly Report June 2020

Timothy Anderson

Timothy Anderson is a contributor with the Australian Stock Report and is currently in his final year of studying a Bachelor of Applied Economics and a Bachelor of International Relations and Politics at the University of Canberra. Tim has a genuine passion for economics, specifically in macroeconomic analysis including how certain macroeconomic policies and indicators affect financial markets and the economy, as well as how these factors affect personal investment strategies. Tim currently holds RG146 Tier 1 Generic Knowledge qualifications.

South 32 Ltd (ASX: S32) is an international mining and metals company that has several operations in Australia, South Africa and South America. South 32 specialises in producing bauxite, alumina, aluminium, energy and metallurgical coal, manganese, nickel, silver, lead and zinc. South 32 was demerged from BHP in 2015, and since has developed into one of the few global mid-tier diversified mining companies. South 32 has a market cap of $A10.8 billon.




What are the key points from South 32’s quarterly report?

Alumina production (kt) for 4Q20 is 1,358, up 6% from 3Q20 and up 4% from FY19. Aluminium production (kt) for 4Q20 is 245, in line with 3Q20 and FY19. Energy coal production (kt) for 4Q20 is 5,657, down 3% from 3Q20 and down 8% from FY19. Metallurgical coal production (kt) for 4Q20 is 1,523, up 31% from 3Q20 and up 4% from FY19. Manganese ore production (kwmt) for 4Q20 is 1,228, down 6% from 3Q20 and down 3% from FY20. Manganese alloy production (kt) for 4Q20 is 34, down 11% from 3Q20 and down 27% from FY19. Payable nickel production (kt) for 4Q20 is 9.7, down 6% from 3Q20 and down 1% from FY19. Payable silver production (koz) for 4Q20 is 3,195, up 31% from 3Q20 and down 3% from FY19. Payable lead production (kt) for 4Q20 is 30.1, up 20% from 3Q20 and up 9% from FY19. Payable zinc production (kt) for 4Q20 is 16.9, down 2% from 3Q20 and up 29% from FY19.

South 32 management announced that the company expected a pre-tax, non-cash impairment charge of approximately US$109 million in the FY20 profit results. In addition, South 32 expects a one-off, pre-tax restructuring costs, including redundancies, at Metalloys of approximately US$7M in the FY20 profit results.

Following the decision to suspend South 32 on-market share buy-back program on 27 March, the company did not purchase any shares during the quarter. South 32 US$1.43 billion capital management program remains 92% complete with US$121 million of the suspended on-market share buy-back program remaining, ahead of its extension or expiry on 4 September 2020.

Throughout FY20 South 32 has been able to realise US$50 million in annual functional cost savings. This is mainly attributed to the simplification of the groups support structures. In addition, South 32 management expects weaker commodity prices over the short-term, as a result the company has further reviewed its activities during the June quarter aimed at delivering a meaningful reduction in controllable costs.

What is the market reaction to South 32 quarterly report?

The market reaction to South 32’s quarterly report is negative. South 32’s share price is down 2% and is currently trading at A$2.175. This market reaction is negative, as the Australia market is down around 0.5%. South 32 is trading at a forward P/E ratio in the high-twenties and has an annual dividend yield of around 4.1%.



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