South32 (S32) – Cash is King

South32 is a diversified metals and mining company with a portfolio of assets producing bauxite, alumina, aluminum, copper, silver, lead, zinc, nickel, metallurgical coal, manganese, and ferronickel products. The company has operations in Australia, India, China, Japan, the Middle East, Italy, the Netherlands, Brazil, Africa, South Korea, the US, Asia, Europe, North America, and Oceania. South32 was spun out of BHP Group (BHP) in 2000 and is headquartered in Perth, Australia.

South32 (S32) reiterated FY25 production guidance for all its commodities bar silver and lead despite its March-quarter update showing a patchy performance in the first three months of 2025. The highlight of the period for Ord Minnett, however, was the much-improved cash flow of US$299 million ($466 million), driven by a one-off payment of US$100 million from Newmont (NEM) to compensate South32’s Worsley alumina division for reduced access to resources due to the operations of the US gold giant’s Boddington mine, and a reversal of its working capital position as management had predicted.

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The improved cash flow left South32 in a net cash position of $252 million as of 31 March, versus a net debt position of almost US$50 million as at 31 December. Alumina, aluminium and nickel output in the quarter matched or marginally bettered market forecasts, while copper, zinc, silver and lead, manganese and nickel fell short. The silver and lead operations at Cannington in north Queensland have been impacted by wet weather, which has hampered the company’s ability to reach higher-grade ore as well as general mining operations.

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The volume and cost problems at Cannington lead us to cut our group EPS forecasts by 8.7%, 4.1% and 4.2% over FY25, FY27 and FY28, respectively, which leads to a reduction in our South32 target price to $4.20 from $4.30. We maintain our Buy recommendation.