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#Why "South32" ?
Last edited 5 months ago

A common question that is asked is why BHP chose to call their spin-off (the company formed by the demerger of their non-4-pillar-(core)-assets) "South32".  Here's what they said when they originally announced the name:

08 December 2014, 11:00 AM

BHP Billiton today announced that the new company it intends to create through its proposed demerger will be called South32.

The majority of South32’s selected assets are located in the southern hemisphere with its two regional centres – Australia and South Africa – linked by the thirty-second parallel south line of latitude. The company’s name represents this footprint and its regional approach to managing its operations.

Graham Kerr, Chief Executive Officer Elect of South32, said: “The naming of South32 is a major step in the setup of our company. Our heritage and the places in which we operate are an important part of our identity.  While South32 is grounded in the southern hemisphere, we will retain our global reach and ambition as we seek to exceed the expectations of a global shareholder base. The diversity of our employees, commodities, customers and communities will give the new company great strength, which is represented by the woven pattern of our logo.

“Many of our assets are among the most attractive in their respective commodities and all have benefited from BHP Billiton’s structured approach to improving safety and performance. As we move to a regional model and develop a fit-for-purpose strategy, we have the potential to further improve performance. This would enable South32’s assets to reach their full potential and benefit our shareholders, employees and communities.”

Mr Kerr said that a wide range of options had been considered when selecting a name for the company, including suggestions from employees across BHP Billiton.

“As we continue to build South32 we are keen to ensure the views of our people are woven through the foundations of the company. I am proud to say that a suggestion from one of the new company’s employees was the basis for the name we have selected as our identity.

“The demerger remains on track to be completed in the first half of the 2015 calendar year. Following the recent announcement of additional members of our experienced and high calibre senior executive team and the third party approvals already achieved at this stage, we are progressing well against plan,” he said.

South32’s head office will be in Perth, Australia, with a regional head office and global shared services centre located in Johannesburg, South Africa. South32 would be an Australian incorporated company but, reflecting our global shareholder base, is intended to have a primary listing on the Australian Securities Exchange, a secondary listing on the Johannesburg Stock Exchange and a standard listing in London.

--- ends ---

South32's current assets are located in Australia (Worsley Alumina [WA], Illawarra [NSW] & Eagle Downs [Qld] Metallurgical Coal, TEMCO in Tas, GEMCO in the NT, & Cannington in Qld), South Africa (South Africa Manganese, Hillside Aluminium & South Africa Energy Coal), Mozambique (Mozal Aluminium), Northern Columbia (Cerro Matoso Nickel Mine & Smelter), Brazil (Brazil Alumina), and the Hermosa project in Arizona, USA.

In summary:  Their assets are predominantly located in the southern hemisphere, and they are run out of Australia and South Africa, two countries that are linked by the thirty-second parallel south line of latitude.


I talked about Worsley Alumina (where I once worked) in a different straw and South32 is mostly known as a good exposure to Bauxite/Alumina/Aluminium, Manganese and Coal, as they have a number of assets focussed on each of those commodities, but they also produce nickel (at Cerro Matoso in Columbia), and their large Cannington mine in Queensland is one of the world's largest producers of silver and lead - see here - now producing seven per cent of the world’s lead and six per cent of the world’s silver.  It's been operational for over 20 years now, and the mine produces about 3 million tonnes annually, employing ~850 people.  They also produce zinc at Cannington.

I like their commodity exposure, and I also like the history of similar demergers over the past 20 years where "non-core" assets are demerged into a new listed company and go on to thrive under new management that are focussed only on those assets, rather than management who were primarilly focussed on other assets under the previous structure.  With focussed management who don't have those distractions, we usually see those assets shine, and the new company does very well, often better than the old company they were demerged from.  Time will tell if that also happens here with S32 vs BHP.  

The demerger of DuluxGroup from Orica was an example I remember well.  Orora from Amcor was another.  Further reading.

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#Response to Market Conditions
Added 7 days ago

27-Mar-2020:  South32 Acts in Response to Market Conditions

Excerpts, with some bolding added:

South32 CEO, Graham Kerr, said “As COVID-19 impacts people across the world including the countries in which we operate, we remain focussed on keeping our people safe and well, maintaining safe and reliable operations, and supporting our communities. At the same time, we are taking action to maintain the financial strength of our business in response to a rapidly evolving environment.

“Our business is well positioned to successfully navigate this period of uncertainty. The initiatives announced today are aimed at delivering approximately US$160M in lower expenditure over the next 15 months to protect our financial position. Our balance sheet remains strong, with reported net cash of US$277M at 31 December 2019, including cash and cash equivalents of US$1.4B, no term debt and an undrawn US$1.5B revolving credit facility.

“The prudent management of our strong balance sheet will continue through our disciplined allocation of capital consistent with our unchanged capital management framework. Since demerger, we have returned US$2.9B to our shareholders by way of ordinary dividends and our capital management program. The disciplined approach we continue to take to capital allocation and our simple capital management framework ensures our shareholders will be rewarded as financial performance improves.”

Lower expenditure comprises an expected reduction in Sustaining capital expenditure (US$150M) and exploration activity (US$10M). Sustaining capital expenditure savings will be realised by a reduction in spend of 10% in FY20 and 18% in FY212. In addition, to prepare for a potentially extended period of low prices, we are reviewing activity across the Group aimed at delivering a meaningful reduction in controllable costs, building on our strong Operating unit cost performance in H1 FY20. We expect to see the benefit of this work and lower producer currencies reflected in our FY21 Operating unit cost guidance.

Further to these initiatives, we have suspended the remaining US$121M of our current on-market share buy-back with the opportunity to review its extension ahead of its expiry on 4 Sept 2020.

We will continue to review the evolving environment, to understand the impact on timelines for our development options and will take further action as required to prioritise long term value across the Group. In this regard, the pre-feasibility study at Hermosa is now expected to be concluded in the Sept 2020 quarter. Separately, given the current market uncertainty, we are working with our JV partner to preserve the value of our Eagle Downs Metallurgical Coal investment beyond the investment decision scheduled for the end of this calendar year.

Mr Kerr said “Sustaining capital expenditure to maintain safe and reliable operations remains a priority, however the flexibility of our programs across the Group means that some activity is able to be deferred to future years in response to unexpected market conditions.

“Investing in exploration and our development options to create shareholder value also remains integral to the Group’s strategy. Our financial priorities remain unchanged, and today’s actions, including the suspension of our on-market share buy-back, are a prudent response to the current exceptional circumstances and consistent with our commitment to maintain a strong financial position.”

Update to operations:

The Group previously reported the withdrawal of FY20 guidance for our South African operations as a result of the government’s announcement of a 21 day nationwide lockdown, from midnight on Thurs 26 March.

In response to the government’s announcement, our South Africa Manganese operations, along with our export coal production from South Africa Energy Coal, have been placed on care and maintenance for a minimum of 21 days.

Our Hillside Aluminium smelter and domestic coal production from South Africa Energy Coal are considered businesses essential for the maintenance of power generation, given the role they play in the sustainability of Eskom’s generation network and will continue to operate during the lockdown.

In Colombia, because of the threat of COVID-19, the President announced a 19 day nationwide lockdown, commencing midnight on Tuesday 24 March. Our Cerro Matoso operation continues to operate with government approval at a reduced rate. As a result of the uncertain impact of the restrictions to production volumes, which are expected to be more than offset by a change in timing of our scheduled furnace refurbishment in the June 2020 quarter, we are withdrawing guidance and will update the market when further information becomes available.

To-date, we have not yet experienced production interruptions from COVID-19 at any other operations. We continue to monitor the impact of restrictions placed on the movement of people and goods across the world and will continue to update the market as appropriate.

[click on link above for more]

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#Bull Case
Last edited a month ago

South32 (S32) FY18 Financial Results Presentation, 23 August 2018


Net Cash.  Low cost, diversified producer of alumina & aluminium, coal, manganese, nickel, silver, lead & zinc. 

[19-Feb-20 Update:  Have signed conditional agreement to sell their South African thermal/energy coal assets, and their manganese assets are currently being reviewed.  They will most likely sell their higher cost South African manganese assets and keep their very low cost (lowest costs in the world) Australian manganese assets.  After their SA thermal coal divestment, S32's only coal exposure will be via metallurgical (met) coal assets in eastern Australia - met coal is predominantly used in steel construction]

Good management.  Committed to return 81% of underlying earnings to shareholders.  [have also been paying special dividends and have commited to over $1 billion in on-market share buy-backs, most of which has already been completed]

The market liked the result today.  Companies that report well and rise on their report generally do well in the months after they report also.  [Their Feb 2020 report was not as positive, and the market wasn't as positive about it either, but S32 have held up OK]

Companies that are spun out of larger companies (as S32 have been out of BHP) often do better than the larger company they used to be part of for years after the spin-out.  [that hasn't been the case with S32, but it's still early years]

I like this commodity mix, and I like their management.  [yep, still do]

And this is a good report.

Disclosure:  I hold S32 shares.

19-Feb-19:  Addiitional:  S32 reported their H1FY19 results last week (on 14-Feb-19).  See here.  Also, their results presentation can be viewed here.  I still hold S32 shares.

19-Feb-20:  This is a good time to be accumulating S32 shares, in my opinion, if you like their commodity mix; they have some of the lowest costs in the world for the commodities that they produce, and they have proven to have very shareholder-return-focussed management.  I have bought more S32 shares.

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#Company Reports
Last edited 3 months ago
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#Company Reports
Last edited 5 months ago

South 32 March 2019 Quarterly Report

Highlights: [in their words]

  • Net cash increased US$48M to US$726M despite an increase in working capital and the allocation of a further US$37M to our on-market share buy-back in the quarter.
  • Maintained FY19 Operating unit cost guidance for all our operations.
  • Achieved record year to date ore production at Australia Manganese and increased FY19 production guidance by 4% at both our manganese ore operations as we continue to respond to favourable market conditions.
  • Lowered FY19 production guidance at Worsley Alumina by 4% as we deliver initiatives to support a sustainable increase to nameplate capacity from FY20 and Brazil Alumina by 5% as we improve steam generation, enabling the realisation of the full benefits of the De-bottlenecking Phase One project.
  • Reduced FY19 production guidance at South Africa Energy Coal, including low margin domestic production by 2Mt and export production by 0.8Mt following community protests and a slower than expected ramp-up of activity at Klipspruit after an insurable dragline outage.
  • Remain on track to achieve FY19 production guidance at Illawarra Metallurgical Coal having completed longwall moves at Appin and Dendrobium following the end of the quarter and successfully renegotiated the remaining labour agreements.
  • Maintained production guidance at Cannington, having commenced temporary road haulage during the quarter to mitigate the loss of rail following floods in North Queensland.
  • Maintained production guidance at Hillside Aluminium and Mozal Aluminium despite an increase in the frequency of load-shedding events. 

Disclosure:  I hold South 32 (S32) shares in my SMSF and also in my main trading portfolio (as well as on my Strawman scorecard).  I also used to work at Worsley Alumina, now owned by South 32, but they were still called BHP back when I worked at and around Worsley for around 9 years, ending about 23 years ago.  Worsley Alumina is a JV with BHP (and now S32) as the senior partners and operators.  The make-up of the other JV partners has changed somewhat over the years, but the majority has always been owned by BHP/S32.  I mostly worked on their overland conveyors, the longest continuous conveyor system in the southern hemisphere.  It was the world's longest conveyor until some dude in Texas built one a few metres longer.  Not even sure if he needed to - just wanted to own the record most probably.  More reading:


That last one was a site visit presentation prepared back in 2003.  A lot has changed at Worsley since 2003.

Good exposure to Alumina (/Aluminium) / Manganese / Coal / Nickel / Silver / Lead / Zinc;  see here:

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#ASX Announcements
Last edited 5 months ago

18-Oct-2018:  South32 September 2018 Quarterly Report - see here

17-Oct-2019:  One year on, their September 2019 Quarterly Report can be accessed here.


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#ASX Announcements
Last edited 3 weeks ago

23 August 2018:  South32 produces strong financial results while reshaping its portfolio

“Stronger commodity prices and our efforts to mitigate inflationary pressure delivered a 16 per cent increase in Underlying earnings to US$1.3B, free cash flow from operations of US$1.4B and a closing net cash balance of US$2.0B.

“We achieved record production at Australia Manganese and Mozal Aluminium, delivered a 10 per cent increase in total manganese ore production and a 20 per cent increase in payable nickel production at Cerro Matoso. At the same time our fully integrated aluminium supply chain benefitted from tight markets by virtue of our predominantly index-linked  3.2 million tonne long alumina position.

“The decision to manage South Africa Energy Coal as a stand-alone business has also allowed us to collapse our regional model and simplify the Group, and is expected to deliver a US$50M annual cost saving from the 2020 financial year. We will also commence a process to broaden South Africa Energy Coal’s ownership in the September 2018 quarter.

"This new way of working is not only lean but also scalable, allowing us to expand our global footprint and invest in opportunities where we can create value. During the year, we entered into a conditional agreement to acquire a 50 per cent interest in the Eagle Downs project, exercised the second year of our Trilogy Metals option and have increased our commitment to exploration with 18 partnerships for greenfield base metal projects now established. Subsequent to year end, we also completed the acquisition of Arizona Mining, adding the high grade zinc-lead-silver Hermosa project and a prospective land package to our portfolio.

“Our strong financial position allowed us to return US$946M to shareholders in respect of the period. This included payment of a US$221M fully franked interim dividend and declaration of a US$317M fully franked final dividend in accordance with our dividend policy. A further US$408M was returned to shareholders as part of our ongoing US$1B capital management program with the remaining US$380M balance expected to be returned to shareholders in the 2019 financial year.

“Looking ahead, we are well positioned. Group production is expected to rise by 5% in the 2019 financial year, further productivity gains and functional cost savings are expected to mitigate industry wide inflationary pressure and we have added high quality development options to our portfolio.”

Graham Kerr, South32 CEO 

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