South32 (S32) have reported a solid half year result given the circumstances. As a S32 shareholder however, I'm more interested in their Outlook and Guidance:
The Group delivered another strong operating result, achieving production records at three operations and increasing our FY21 production guidance for Cerro Matoso [nickel], Cannington [silver, lead, zinc] and Illawarra Metallurgical Coal. We have maintained guidance for our other operations, while providing Q3 FY21 production guidance for South Africa Energy Coal.
[note: S32's "South African Energy Coal" is in the process of being sold to a majority black-owned corporation or organisation in South Africa, with the coal being used locally to generate electricity for South African communities. They have stated on Slide 24 of their results presentation (link above) that they are targeting divestment of South African Energy Coal by 31-Mar-2021, i.e. next month.]
S32 have broken down the specific production, costs and expediture guidance for each of their operations on pages 10 to 13 of their "Financial Results" announcement - 1st link at the top.
I hold S32 shares because I think they have increasing-commodity-price tailwinds, lots of net cash (no net debt), are still buying back their own shares, and paying dividends, and I like their commodity mix. I will like it a lot more once they dispose of their thermal (energy) coal assets (in South Africa), a process that has already begun and is well progressed. Their Australian coal mines are all Met Coal, but I wouldn't complain if they exited coal altogether to be honest. I think there are a lot of headwinds with coal, and tailwinds behind most of the other commodities that they produce.
I prefer S32 to BHP (which is the company S32 were spun out of) because BHP are too reliant on Iron Ore, which I think will face some pricing headwinds when Brazil's Vale get back into full production post-COVID. S32 have NO iron ore exposure, so coal is their biggest headwind - which BHP also shares - as BHP did not spin ALL of their coal assets out into S32, they kept a couple of coal mines on the east coast of Australia for themselves, which produce both types of coal. BHP have not been as keen to offload their thermal/energy coal assets compared to S32 who have almost completed their own thermal/energy coal asset divestment.
Once that divestment has been completed, S32 will produce: Bauxite, from which they make Alumina, from which they make Aluminium, plus Nickel, Silver, Lead, Zinc, Manganese and Metallurgical Coal.
S32's 100%-owned Cannington mine in Queensland is one of the world's largest silver producers, accounting for roughly 6% of the world's silver production annually, and their 99.9%-owned Cerro Matoso mine in Northern Columbia is one of the world's largest producers of nickel. When thinking about nickel exposure via an ASX-listed company, S32 often gets overlooked, but they are currently the main way I choose to play nickel, which is a core battery ingredient, so will see increased future demand.
In their presentation (2nd link at the top of this straw), they do discuss the Manganese, Alumina and Met Coal markets (pages 28 to 30) and the outlooks for each of them.
--- click on the links above for more ---
[I hold S32 shares.]
South32 coal mine extension axed, by Nickolas Zakharia @ www.australianmining.com.au
South32’s proposed mine life extension for the Dendrobium mine in New South Wales has been rejected by the New South Wales Government Independent Planning Commission (IPC).
The IPC found environmental impact risks are “likely to be irreversible” for the Dendrobium extension.
The extension proposed to mine coal from two new areas near Avon and Cordeaux Dams in Wollongong, extending the mine’s operations until the end of 2048 and with an additional 78 million tonnes of run-of-mine coal.
According to the IPC, expanding the two areas would threaten Greater Sydney and the Illawarra’s drinking water catchment.
However, a government assessment from the New South Wales Department of Planning, Industry and Environment previously determined the $956-million extension was “approvable” and “in the public’s interest”.
The IPC declared it did not meet its expectations for sustainability and did not meet the public’s interest.
“(After) careful examination of all the evidence and weighing all relevant considerations, the IPC has found that the longwall mine design put forward by South32 does not achieve a balance between maximising the recovery of a coal resource of state significance and managing, minimising or mitigating the impacts on the water resources and biodiversity and other environmental values of the metropolitan special area,” the IPC statement of reasons for decision read.
Other concerns about the mine design included its impact on Aboriginal cultural heritage, biodiversity, and greenhouse gas emissions.
According to the IPC, South32 did not address concerns about the proposed mine design.
“The applicant has made minor amendments; however, the impacts remain significant,” the IPC stated.
In an ASX announcement, South32 stated it is reviewing the findings from the decision.
“We are reviewing its findings and will continue to engage with key stakeholders including the New South Wales Government, relevant agencies and the community in relation to the Dendrobium next domain project ahead of providing further updates,” South32 stated.
The Dendrobium mine produces 5.2 million tonnes per annum of run-of mine coal, which is used in local and international steelmaking.
South32 stated the project extension would support continued employment of its 90 per cent local workforce.
New South Wales Minerals Council chief executive officer Stephen Galilee has called on the state government to intervene in the decision.
“The refusal of this Project will cost 700 direct local jobs at the Dendrobium mine and put the jobs of thousands more people at risk, including local contractors and suppliers, as well as thousands of jobs at the BlueScope Steelworks dependent on coal from the mine,” he said.
“The NSW Government must intervene to ensure this project is approved and can proceed, as recommended by its own Department of Planning.
“To do anything less will demonstrate a willingness to throw away billions in investment and the jobs of thousands of people at a time of significant economic need.”
--- ends ---
I hold S32 shares in my SMSF. They are down by around ~3% so far today on the back of this as well as the falling silver price (which I've discussed over in the "Gold an an investment" forum). Their Cannington mine in north-west Queensland, 200km south east of Mount Isa, near the township of McKinlay, is the world's largest single silver producer, representing about 6% of the world’s primary silver production. It's not all S32 produce of course - they also produce bauxite, alumina, aluminium, nickel, manganese, lead, zinc and both types of coal - met coal and thermal/energy coal. I prefer S32 over BHP because S32 have been more on the front foot in terms of divesting their thermal/energy coal assets - which are located in South Africa. However, the article above is about the NSW Government knocking back S32's application to extend one of their met (metallurgical) coal mines here in Australia. Things are changing folks, and for the better I believe! In this particular case, concerns relating to water resources, biodiversity and other environmental issues are being seen as more important than building a bigger coal mine. The main issue is clearly the threat to the Greater Sydney and the Illawarra’s drinking water catchment area. Coal miners are going to face more and more roadblocks and knock-backs going forwards. It's a dying industry, and companies need to transition away from it and into areas and/or commodities that have strong tailwinds instead of headwinds.
Quarterly Report December 2020
• Achieved record year to date production at Worsley Alumina with output above nameplate capacity as the refinery benefitted from on-going improvement initiatives.
• Set a year to date production record at Brazil Alumina as the refinery continued to achieve high levels of plant availability, despite planned maintenance.
• Delivered another record for year to date ore production at Australia Manganese as the performance of our high-grade circuit improved.
• Increased production at Illawarra Metallurgical Coal by 11% in the December 2020 half year as the operation continued to benefit from the return to a three longwall configuration.
• Increased FY21 production guidance at Cannington by 5% with underground performance supporting the accelerated extraction of a higher-grade mining sequence.
• Approved an early development timetable for the low capital, higher-grade Q&P project at Cerro Matoso, increasing FY21 and FY22 production guidance by 3% and 13% respectively.
• Determined not to proceed with development of the Eagle Downs Metallurgical Coal project, with the project placed on hold while we assess options for our joint venture interest.
• Entered into a binding agreement to sell a portfolio of non-core minerals royalties to Elemental Royalties Corp.
• Progressed the sale of South Africa Energy Coal during the quarter, receiving approval from the Competition Tribunal of South Africa and advancing discussions with Eskom to meet the material outstanding conditions.
• Following the end of the quarter, completed the sale of GEMCO’s shareholding in the TEMCO manganese alloy smelter.
DISC : I hold
Not a good year for S32, but I remain of the view that they are well poised to benefit from a rebound in the prices of Alumina/Aluminium, Nickel, Zinc, Manganese, Metallurgical Coal and Silver.
S32's Cannington mine in NW Queensland is a major global producer of silver.
Mexican mines dominate the production of silver, particularly in the primary sector.
Mexico-based precious metals miner Fresnillo is the world’s leading silver producer and operates the world’s top producing silver mine, Saucito, as well as other leading mines, Fresnillo and San Julian.
Polymetal International operates the Dukat mine in Russia, where silver output falls just under Saucito’s production levels.
According to Geoscience Australia, Australia has the largest share of global economic silver resources, even outstripping Mexico, Canada and the US.
While almost all of Australia’s silver is produced as a by-product of underground lead-zinc or copper mines, South 32’s Cannington mine in Queensland is one of the few mines in which silver is a principal extracted commodity (along with lead).
Other major silver-producing mines in Australia include Mount Isa in Queensland and McArthur River in the Northern Territory, both owned by Swiss mining giant Glencore and which also produce zinc and lead.
With the silver price soaring as safe haven demand kicks in among investors comes the news that mine output is certainly going to be disrupted in 2020 due to the global pandemic — but no one knows how badly.
According to the Silver Institute’s World Silver Survey 2020, the situation as it relates to mining is evolving on a daily basis “so, accurate predictions are challenging”.
The institute has estimated mined output will be down 54.5 million ounces, or 1,694 tonnes, representing a 6.4% decline.
China will “undoubtedly” have had mining impacted by COVID-19 but by an unknown amount, as most of its silver production comes from lead-zinc operations, the report continued.
Other major silver producers, including Bolivia, Mexico and Peru, have implemented nationwide lockdowns resulting in temporary closures of silver mines. Canada has suspended mining operations in Quebec province although mines in other provinces remain open.
While silver producing mines in Australia, Russia and the United States are operating as normal, the Silver Institute believes there is a risk these countries could introduce COVID-19 measures where mining could be affected.
This comes on top of the 35Moz (or 1,091t) of silver that was “lost” in 2019, due mainly to industrial and community actions.
Blockades by truck drivers and landowners closed the Penasquito mine in Mexico for a total of 90 days while strikes occurred in Bolivia and Peru.
Two large mines (Fresnillo in Mexico and Pan American Silver in Argentina) experienced unexpected declines in grades.
Silver has been in surplus for seven out of 10 years
The structural surplus in silver continued in 2019 with supply exceeding demand by 31.3Moz (973t). The period from 2010 to 2019 saw silver market surpluses in seven of those 10 years.
But, that may not be as negative as it first appears: the Silver Institute said data collection in recent years has been better and it may be that previously unidentified inventories have shifted to vaults that report holdings.
Last year, silver bullion stocks held at London vaults rose by 24.5Moz (761t), while Comex inventories rose by 23.3Moz (724t).
“It is worth noting that the rise in Comex stocks was far smaller than the one we had seen in 2018, reflecting higher local demand,” the report said.
But lower grades have seen mined silver output fall
Global mined silver production in 2019 fell for the fourth consecutive year, down by 1.3% to 836.5Moz (26,019t).
This was the result of declining grades at large silver mines, lower silver output from copper mines and disruptions at some operations.
Production from primary silver mines fell by 3.8%, while silver sourced from lead-zinc mines rose by 2.3%.
Production in Australia grew 6.6% year on year to 42.9Moz (1,334t), driven by higher output from lead-zinc mines such as Mount Isa and the Century tailings project.
Australian focus now on primary silver plays
The Silver Institute notes the importance of silver as a by-product, with 71% of mined silver production in 2019 coming from lead-zinc, copper and gold mines.
But it would seem, from market action and media coverage, that there is growing focus on primary silver projects in Australia.
In recent weeks, Small Caps has been reporting on silver developments by Australian explorers.
Argent Minerals (ASX: ARD) is back on the ground after four years and now drilling at its Kempfield copper-gold-silver project located on New South Wales’ Lachlan Fold Belt.
Located 41km south of the Newcrest Mining (ASX: NCM) operation at Cadia, Kempfield is Argent’s’s flagship project, 100% owned % and a NSW-designated state significant development.
The Kempfield polymetallic project has, from previous exploration, a JORC resource of 52Moz of silver equivalent.
Silver Mines (ASX: SVL) is expanding its diamond drilling campaign at its Bowdens project in NSW to up to 10,000m as a fast-rising silver price will mean increased investor focus on potential new exploration projects.
The primary targets of the drilling campaign are the high-grade silver lying below the current proposed pit and “multiple” new targets to extend the existing mineral resource.
Drilling is expected to continue until “at least” the end of 2020.
Investigator Resources (ASX: IVR) has just raised $8 million to advance its Paris silver project located in pastoral country on South Australia’s Eyre Peninsula, the site 60km northwest of the town of Kimba.
Investigator has a resource of 9.3 million tonnes at an average 139 grams per tonne silver and 0.6% lead for a contained 42Moz of silver and 55,000t of lead.
Previous drilling there between 1998 and 2007 returned 17.7m at 45.16g/t gold and 118g/t silver, and 7.9m at 6.54g/t gold and 140g/t silver.
While Azure Minerals (ASX: AZS) has diverted its focus to projects in Western Australia due to COVID-19 inhibiting its work program in Mexico, the company has assured shareholders it is not abandoning its silver plans there.
Azure managing director Tony Rovira recently said the company made the move due to the severity of the COVID-19 pandemic in Mexico and the uncertainty of future field operations.
But, he stressed that Azure was not losing interest in that country.
“It’s important for our shareholders to understand that our projects in Mexico remain an important core business for the company,” Mr Rovira said.
--- most of the above is taken from the "Small Caps" articles that I have provided links to below ---
--- for more on S32 and their FY20 results and FY21 outlook click on the links at the top ---
[I hold S32, I like their commodity mix, including their silver production from Cannington, which is one of the world's top-10 silver producing mines. I am not very interested in the small silver explorers and developers like AZS, MTH, IVR, SVL and ARD mentioned above, because of the high risk associated with such early stage companies, however I do appreciate that there is probably a trade in them for those who are bullish on silver from here.]
DRILLING OF PATERSON GOLD-COPPER PROJECT
APPROVED UNDER STRATEGIC ALLIANCE - AQD and S32
Looks like South32 is diversifying into gold. This to me is a good sign. I'm a bit underwater with South32 but this move is reassuring. I suppose this and additional EU stimulus measures could explain the recent rally