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#Khoemacau withdrawal
stale
Added 6 months ago

Maybe not surprised South32 has pulled out of the race to acquire Khoemacau

https://www.mining.com/web/south32-sees-competitive-process-for-botswana-copper-mine-a-bit-rich/

Australian diversified miner South32 said while it has plenty of regional expertise, the sales process for Botswana’s Khoemacau copper mine was quite competitive.

“It’s a competitive process, a bit rich for our blood to be honest,” CEO Graham Kerr told an earnings call on Thursday.

South32 not willing to pay premium on what looks like a quality copper asset in a safe African jurisdiction with a mine life of over 20 years and getting bigger. I would argue this is even safer than Chile. I even rate Botswana better than North America which is home to the South32 Hermosa project.

Does Kerr know that just like high PE stocks, to buy quality you need to sometimes pay more than you should?

https://www.khoemacau.com/our-portfolio/current-operations

This leaves a few Chinese and South African firms (Impala Platinum, Exxaro Resources and Sibanye Stillwater) in the running who perhaps understand the value more than South32. I'm betting the Chinese will eventually acquire Khoemacau as they seem pretty desperate to get their hands on anything they can't get in Oz. As an aside, the Chinese do part-own Northparkes in NSW with the Japanese which is quite funny.

I'm out of South32 last week on the news. Really wanted South32 to get Khoemacau but this withdrawal I see as a negative. It also possibly means they want to spend energy on other things on their plate they need to clean up rather than get distracted in taking another acquisition. Or maybe they got burnt by the Hermosa writedown and are now being more cautious.

#Business Model/Strategy
stale
Added 7 months ago

Price targets looking at my US Morgan Stanley account (which I just unlocked again today thanks to the support person on the phone in America!)

Morningstar:

We retain our fair value estimate for no-moat South32 of AUD 4.10 per share. Elevated metallurgical prices saw the division comprise around one-third of fiscal 2023 EBITDA, but we forecast metallurgical coal to be less than 10% of EBITDA at the end of our forecast period in fiscal 2028. This is driven by our view that metallurgical coal prices will revert to our assumed midcycle price of roughly USD 150 per metric ton from 2027 based on our estimate of the marginal cost of production, down from spot of roughly USD 260 per metric ton. Lower metallurgical coal production of around 4.7 metric tons in fiscal 2028, down from 5.4 million in fiscal 2023, also provides an assist. This is consistent with South32’s strategy to transition its portfolio to more metals such as aluminum, alumina, copper, and zinc, that are more likely to benefit from decarbonization and electrification. We forecast alumina and aluminum to comprise roughly 30% of fiscal 2028 EBITDA, followed by nickel (17%), manganese (14%), and silver (13%). Copper and zinc comprise the remainder, with the latter driven by the company developing its Taylor zinc-lead-silver project in Arizona, which we think is likely

Morgan Stanley:

Financial results in-line, but FY24 cost guidance showing inflation pressures: S32's financial result were broadly in-line with MSe/consensus while the full year dividend was slightly weaker against both MSe/consensus (see here). Upon updating our model we see little change (~1.5%) to our FY23 EPS. FY24 production guidance was largely maintained except for a slight downgrade (5,000kt vs prev: 5,300kt, met + thermal) at Illawarra coal driven by four planned longwall moves for FY24. S32 also provided FY24 cost guidance and upon adjusting for currencies shows the majority of assets continue to face inflationary pressures. We see these factors driving a ~33% cut to our FY24e EPS (from 16cps to 11cps) and a ~10% cut to our FY25e EPS (from 20cps to 18cps).

Sierra Gorda a key upcoming catalyst for S32: With the fourth grinding line expansion expecting an FID in 2HFY24 and S32 today confirming a large scale (1.89bt @ 0.41% CuEq) copper deposit at Sierra Gorda, we have now incorporated the expanded throughput of 57-58Mtpa (~15-20%) into our estimates. We see the project costing S32 ~US$550m over 3 years from FY25-27 and see the additional grinding circuit ramping up in FY28 to for the site to reach a total milling rate of ~57Mtpa by FY30. The expansion as a result drives a higher base case (and Bull and Bear) valuation of A$3.70/sh (prev: A$3.65/sh).

Why are we OW? Despite cost inflation in FY24, we see FY25 remaining largely consistent vs. our previous forecasts and also in-line with management's updated FY25 guidance. In coming months (2QFY24) we are expecting an FID for the Taylor deposit and with the recent write-down of the asset, we are currently valuing Hermosa at book value (~US$1b), and see the market having captured the potential upside risks to capex, leaving room for potential upside. In addition, we await the FID on the fourth grinding line at Sierra Gorda, where in our opinion, we have been conservative in our estimates as upside potential could come from higher recoveries, operating cost efficiencies, better grades and a faster build. While the stock trades close to our base case, we see the potential for a positive surprise sustaining our OW rating and as such shows ~13% potential upside to our new PT of A$4.15/sh (prev: A$3.90/sh), which benefits from a higher Bull Case.

There's lots to digest from these reports. Above is just a summary.

There's not much on the overall Aluminium supply/demand dynamics. Ignoring the news about closure of some European smelters, China is still flooding the market with Aluminium and showing they are in control of pricing like lots of other commodities. I'm using the below tweet as a reference:

da1942592362f45b75d6fc53a7e70c6255e893.png

[held]

#Hermosa Project Update
stale
Added 8 months ago

South32 has taken a non-cash impairment expense for Hermosa project of ~US$1,300M in relation to the Taylor deposit. The impairment expense will be excluded from FY23 Underlying earnings.

Current value of the Hermosa project as at 30 June 2023 will be ~US$1,001M, with ~US$482M for the Taylor deposit . The carrying value of the Clark deposit and regional exploration land package is unchanged at ~US$519M.

The impairments were as a result of the following:

* Covid-19 restrictions impacting development and access

* Significant dewatering requirements to allow safe access to the orebody further delayed the timeline to first production and required an investment of ~US$365M for critical path orebody dewatering

* Expected higher pre-production capital expenditure compared to pre-feasibility study estimates as result of rising input prices including steel, cement and electrical components

Interestingly, South32 paid US 1.3 billion to acquire Arizona mining in 2018 for the Hermosa deposit.

Still it appears Graham Kerr still sees a few positives

“The Hermosa project has the potential to sustainably produce commodities critical for a low-carbon future, from multiple development options, for decades to come.

“We are disappointed by the delays resulting from the impact of COVID, the significant dewatering requirements and current inflationary market conditions.

“We continue to see substantial opportunity to unlock additional value across Taylor, Clark and our highly prospective regional exploration package and that optionality is not included in today’s impairment assessment.

“The feasibility study for Taylor remains on track, and will benefit from the 41 per cent increase in the Measured Mineral Resource announced today. The Taylor deposit remains open in several directions, offering the potential for further growth.

“Beyond Taylor, Clark is well positioned to supply high-purity manganese sulphate monohydrate (HPMSM) for the electric vehicle supply chain in North America, creating a second development option at Hermosa.

“In addition, we are encouraged by the exploration options across our regional land package, including our high priority Peake and Flux targets, with recent drilling at Peake delivering our best copper exploration results to date.”

Mining is a tough industry!

[held]

#Business Model/Strategy
stale
Added 8 months ago

Old article but South32 eyeing Botswana asset

Sandfire also interested.


3c2ba27eb1e2c59054c90df3371f648ea90a21.png

[held]

#Financials
stale
Added 11 months ago

For those seeing the drop in share price on Monday, South32 results came out and was all below expectations with guidance being downgraded. Looks like no one anticipated the numbers being so bad

8d3d766dd0a0d186e77e5b9b5ee8a99140b0aa.png

Source: Factset (Capital IQ pro did not have the latest report which is pretty bad considering the cost)

Share price seemed to have recovered today but it is a bit disappointing that Cannington had been impacted by flooding and South32 did not inform the market until now. Unlike nearby neighbour Capricorn, operated by 29Metals which got totally flooded, mining is continuing at Cannington but guidance reduced.

Other negative surprises include reduced production at Sierra Gorda again due to weather events and falls in Nickel production.

[held]

#Financials
stale
Added one year ago

Base metals valuation template sheet of Cannington and Sierra Gorda using the FY22 Annual report.

Think the valuation of Sierra Gorda might be a bit on the high side as I probably need to subtract the acquisition costs and contingent payments somewhere, will need to check the numbers again. So it is all preliminary and shouldn't be used as a real valuation. Cannington seems "right".

I don't have enough data yet on Sierra Gorda other than the fact that it has a 20+ year reserve and copper equivalent which is why the Mt cell is blank. So I'm taking an average of the South32 estimate production numbers in Cu eq from the qtr report and previous production of 29.5kt.

56d902e0dae291cc571e5da3756fab0281570a.png

[held]

#Business Model/Strategy
stale
Added one year ago

You learn new things when you take time to go through Annual reports!

f71bc74b6a99004bd4bb60abc2b2c2f2dfdeb2.png

The bottom row is the Open Cut resource estimate.

In other words, South32 still is unsure about starting an Open Cut operation as there is no reserve established. Only an underground reserve specified as shown below:

45790edd8c62729a44cc849cb502abedd957a5.png

While this is viewed as a negative, it does show South32 is extra cautious on deploying their capital and their management know what they are doing.

I think all those silver miners such as MKR and maybe retail favourite SVL should take a leaf out of South32 and find out why they went underground first.

Just like Elders, I now remember South32 is another one I averaged down during Covid. My accountant also warned me against South32 as some of her clients booked losses when it dropped below $3 in 2019 and cut dividends. Of course I didn't know much about South32 back then other than they had a strategy to turn around their business and cut their loss making operations and they had one of the largest producing silver mines in Oz.

Obviously not financial advice.

FYI: I'm still working on doing an NPV valuation for S32, it will take time though.

[held]

#Industry/competitors
stale
Added one year ago

From the South32 Dec Qtr update

I can't help but think that Devlop Global mining services has something to do with the labour shortages experienced at Golden Grove (29metals) and now Cannington (South32).

a197fcf55860c6b2274708d24a7fad97207737.png

Maybe Kerr should give Beament a call?

[held]

#Financials
stale
Added one year ago

Received a big fat dividend check, although not as much as Fortescue

Dividend has literally earned a bag or two since the covid pandemic lows (from marketindex)

5090520d961d94788544c947fcdfed5e41e76b.png

But given recession fears and aluminium prices coming back to earth, this could be as good as it gets.

[held]


#Risks
stale
Added 2 years ago

Adding to the last straw, one risk no one has highlighted yet is the missing operational guidance on Aluminium for Brazil and South Africa.

2b771cad52964076e6cfeeb87ebc2c694a5139.png

I would have thought switching to non-coal power sources for Brazil, Hillside and Mozal would make the operations less sensitive to energy costs and make operations more predictable.

Also the dividend was smaller than I expected (I was estimating about 20c with the sale of all those royalties)

[held]

#Financials
stale
Added 2 years ago

Valuation comments:

  • Could be possible to extrapolate a valuation off the recent quarterly update using the most recent commodity prices but I think would require lots of work as you have multiple commodities (Al, Zn, Cu, Mn, Ni and Met coal) each with different cost calculations and idiosyncrasies.
  • Took the easy route out by basing the price off the last comparable period of 1st HY 18 where they made similar amount of revenue and checking the share price from year before when they had similar production numbers (not revenue, just output).
  • Would be good to hear from anyone who can estimate the financials quickly from the most recent update.


Held


#Industry/competitors
stale
Added 2 years ago

Manganese prices trending up

Something I missed was that the price of Manganese has been trending upwards

https://www.metal.com/Manganese/201303070010

It was around RMB50 in April. So the recent selloff is a bit out of character. It has pulled back a bit though

More info here as well:

https://stockhead.com.au/resources/monsters-of-rock-while-other-commodities-waver-manganese-makes-its-comeback-and-chinese-parent-wants-to-swallow-yancoal-whole/

[held]

#Risks
stale
Last edited 2 years ago

With recession fears looming in Europe and US and a wave of Aluminium/Copper/Manganese supply coming from China post lockdown, South32 would be obviously in the firing line. Down 8%+

Furthermore, I would ignore LME inventory levels as a result of Europe not producing metal from the ongoing energy crisis caused by Russian tensions. This is because China is helping make up for the shortfall in metal inventories across Europe. There are quite a few articles on this:

https://www.reuters.com/markets/commodities/tight-lme-zinc-inventories-could-be-topped-up-china-2022-06-22/

Having got all the bear stuff off my chest, when the China stimulus does eventually hit, maybe we may see demand and prices start recovering.

Bull case would be if Europe can find resolution to the energy crisis they are facing by going Nuclear, but I think this is unlikely given the German government is currently anti-nulcear.This would mean aluminium and copper smelters reopening, but ramping up production after idling plants takes at least a few months. So this case is a double-edged sword for S32.

Added more today partly due to myself forgetting about my limit buy.

#ASX Announcements
stale
Last edited 2 years ago

Quarterly report released

https://www.south32.net/docs/default-source/exchange-releases/quarterly-report-march-2022.pdf?sfvrsn=c313bc61_2

South32 Maintains Guidance on production

Operating Cost Guidance Increased

Of particular note is increased working capital due to congestion in supply chain and logistics.

#Risks
stale
Added 2 years ago

Chile miners sanquine about change.

South 32 bought a large stake in Sierra Gorda recently but then the share price tanked in early March (along with a few other mining companies with projects in Chile) when the environmental committee's draft proposal calling for nationalisation of mining companies managed to pass the Chile Constituent Assembly. This will then be put to the full assembly in July and needs 2/3 votes to pass.

Rumour is that it is looking unlikely. Maybe that's why some lithium and mining companies with operations in Chile rallied hard today?

"While the nationalisation of economic activity including mining is highly unlucky to make the final draft constution in July, which the population will then vote on in September, efforts to confer rights on the natural world would be just as problematic, if equally unlikely to prosper. "If you give rights to the natural world, you won't be able to do anything," said the analyst."

https://www.mining-journal.com/events-coverage/news/1429346/chile-miners-sanguine-about-change

Held

#Risks
stale
Added 2 years ago

Road key to Trilogy-South32 project under review

The US Department of Interior (DoI) this week filed a motion to remand the final environmental impact statement (FEIS) and to suspend the right-of-way permits issued to the Alaska Industrial Development and Export Authority (AIDEA) for the Ambler access project.

https://www.miningweekly.com/article/road-key-to-trilogy-south32-project-under-review-2022-02-23

The Ambler project is another big base metal project. But it seems the Biden administration is starting to throw quite a few roadblocks on a few mining projects especially critical materials that are in high demand. Hope to be proven wrong.

Either way, this increased regulation on mining projects in America will be bullish for metals, especially those outside America. It goes some way to explaining why South32 spent billions acquiring Sierra Gorda instead of looking at development projects.

Disc: Still holding.

#Acquisition
stale
Added 2 years ago

Sierra Gorda Acquisition

South32 completes acquisition of 45% interest in Sierra Gorda.

With this transaction out of the way, it does show some of the big top tier miners are willing to pay big money to get production secured now from large mines rather than spend time developing mines and bringing them into production. In this case, the upfront payment was $1.4 bn with another 500m milestone payment if the threshold for copper production and sale prices are achieved.

#Business Model/Strategy
stale
Added 4 years ago

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

https://newswire.iguana2.com/af5f4d73c1a54a33/s32.asx/6A986620/S32_AQD:_Drilling_Approved_at_Paterson_Gold-Copper_Project