Category: Financial Markets

with adjusted net profit after tax up about 150% to USD 489 million. Adjusted EBIT nearly doubled to USD 844 million from USD 446 million, thanks to higher commodity prices, and was in line with the expectations. The company did a creditable job at offsetting inflationary pressures, primarily through cost reductions and efficiencies. 

Dividends surprised on the upside, with South32 declaring a USD 3.5 cent final and USD 2.0 cent special, bringing the full year payout to USD 6.9 cents fully franked, ahead of our USD 6.0 cent forecast. Given South32 possessed about USD 400 million net cash at the end of June, the cash returned to shareholders seems to be worthy use of funds.. In addition, the outlook for commodity prices is probably looking better for the company in fiscal 2022.

Metallurgical coal has been one of the strongest performers of late, the price doubling in less than six months. At the divisional level, Cannington had a much better year, reflecting strong production and higher prices, with EBIT more than tripling to USD 350 million.

Company’s Future Outlook

South32 has increased the size of its ongoing on market share buyback by USD 120 million, with about USD 250 million remaining to be returned.  Along with share repurchases, South32 continues to make incremental portfolio improvements. A more focused and streamlined portfolio should reduce South32’s expenditure requirements and allow capital to be directed to higher returning opportunities. Like many diversified mining peers, South32 is positioning itself for a carbon constrained world and expects the majority of its commodities to do better under that constraint, notably aluminium for light-weighting and nickel for batteries.  The recent rebound in the coking coal price may provide an opportunity, which could be a good option.

Company Profile

South32 was born of the demerger of noncore assets from BHP in 2015. South32 comprises BHP’s former aluminium and manganese businesses and the South African energy coal and New South Wales metallurgical coal businesses. It also owns the Cannington silver/lead/zinc mine in northwest Queensland and the Cerro Matoso nickel mine in Colombia. Cannington silver mine and manganese operations deliver high returns but have relatively short reserve life. The company acquired Arizona Mining, which brings with it the high-grade and likely low-cost Hermosa deposit in the U.S.

(Source: Morningstar)

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