South32 (S32)

By Jason Fittler

In 2014, BHP Billiton decided to bring together some BHP Billiton’s high quality, well-maintained, cash generative assets to form a new resources company, diversified by commodity, customer and geography.

In May 2015, following a successful shareholder vote, South32 was founded.

Based in the Southern Hemisphere, South32 has its head office in Perth, regional hubs in Perth and Johannesburg, and marketing office in Singapore, and operations are in Australia, Southern Africa and South America.

The company is a globally diversified metals and mining company with a portfolio in bauxite, alumina, aluminium, thermal and metallurgical coal, manganese, nickel, silver, lead and zinc.

S32 is the world’s largest producer of manganese ore and owns the world’s largest silver mine.

S32 also runs an alumina refinery and two modern, cost-competitive aluminium smelters plus ferronickel operations.

If you held BHP shares, you now also hold some S32 shares. The company has limited research out at present but overall it is a good position.

There is expected softening of the sectors in which they operate however the company holds $650 million in cash. S32 has expected cash flow from operations of $1.4 to $1.8 Billion over the next 12-24 months.

The cash flow should be sufficient to cover operating costs and dividends.

Given the soft outlook for some of the commodities S32 produces the company will need to maintain stable production levels and improve costs before any upgrade of its investment rating. 

With an estimated fair value of $2.80, the company is looking cheap making it worthwhile to top up your holding if you are a long-term investor.

For more information about South32 (S32) please contact us on 07 4771 4577.