South32 share price: where next following FY20 production results

We examine the highlights from South32’s just released full-year production results.

South32 share price dips following market update

Operationally speaking, 2020 proved to be a strong year for mining and metals giant South32 (ASX: S32) – with the miner recording record production across its Brazilian Alumina, Hilllside Aluminium and Australian Manganese ore segments.

Even so, in response to today’s quarterly and full-year production release, in the first two hours of trade the South32 (S32) share price fell sharply, before rebounding modestly from its morning lows during the afternoon session.

At the time of writing, the mining and metals company traded at $2.18 per share, well off its 52-week highs.

Production results at a glance

Overall, and looking at some of the key results from South32’s production release, on a year-over-year basis, the miner reported:

  • Aluminia production of 5,269 kilotonnes, up 4%
  • Energy coal production of 24,129 kilotonnes, down 8%
  • Metallurgical coal production of 5,549 kilotonnes, up 4%
  • Manganese alloy production of 163 kilotonnes, down 27%
  • Payable zinc production of 66.7 kilotonnes, up 29%

On a more granular level, the company noted that it exceeded its previously set FY20 guidance at its Cannington mine sites by an impressive 8%, in a result driven by ‘higher mill throughput, enabled by a draw down in run of mine stocks and underground miner performance,’ it was flagged.

Though uncertainty continues to dominate global markets – South’s CEO, Graham Kerr – noted that 'We have continued to see good demand for our projects, with sales exceeding production at the majority of our operations.’

'Looking forward we remain focussed on reducing controllable costs, managing counterpart and supply chain risk and optimising working capital to ensure the business remains resilient during a potentially extended period of volatility and lower commodity prices,’ Mr Kerr finished.

Elsewhere, in a move aimed at strengthening the firms balance sheet, South32 said it has worked to reduce its operating and exploration expenditure, as well as kickstarted a review aimed at tangibly reducing the company’s controllable costs.

The outlook

Looking forward, South32 today revealed the details behind a number of charges it expected to book as part of its FY20 results as well as provided a brief update on the sale of its stake in South Africa Energy Coal.

Firstly, the miner said it expected to make a pre-tax, non-cash impairment charge of around US$109 million as part of its full-year FY20 results. In addition to this, the company said it expected to book US$7 million (pre-tax) worth of restructuring costs, including redundancies, as part of its FY20 results.

For reference, both of these charges will be excluded from South32's Underlying earnings for fiscal 2020.

Secondly, it was also noted that during the quarter the miner made significant progress on selling its stake in South Africa Energy Coal to the South African resources company, Seriti Resources. Though still subject to a number of conditions being met, the company said the it expects the transaction to be finalised during the FY20 December half.

Interestingly, while analysts are bullish overall on South32 – with an Overweight rating on average, the company's average analyst price target standing at $1.75 per share, implies some downside potential from current price levels, according to MarketWatch.

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