Stronger commodity prices, a reshaping of the asset portfolio and improved production have been the key factors supporting the higher share price for South32 Ltd (ASX:S32) over the last ~12 months. We recently researched the Company in The Dynamic Investor to assess whether S32 remains an attractive exposure to rising commodity prices.

About South32

South32 is a diversified mining company with principal exposure to aluminium/alumina, coal and manganese operations. The asset quality of S32’s portfolio is high, with the majority of assets in the bottom half of their respective cost curves. The Company, which was spun out of BHP Billiton in May 2015, has a primary listing on the ASX with secondary listings on the Johannesburg Stock Exchange and the London Stock Exchange.

Following the sale of Illawarra Metallurgical Coal in late August 2024, S32 is now a ~90% base metal miner. Beyond the existing portfolio, there are numerous growth projects/options that will provide long-dated base metals growth.

Key Fundamental Drivers

On Track to Meet Production Guidance

In its quarterly production results for the 1st quarter of financial year 2026 (1Q26), S32 reiterated full-year production guidance across its aluminium, copper, zinc and manganese businesses. Importantly, key projects are progressing according to plan and all assets met or exceeded expectations in 1Q26 except Cannington.

The re-iteration of production guidance for Financial Year 2026 (FY26) is significant from the viewpoint that FY25 results – as well as unit cost guidance for FY26 – reflected cost inflation across the board. In particular, increases to costs at Cannington and South African Manganese (although in line with guidance) have all but eroded value for those assets. Similar increases in Sierra Gorda mining costs have driven a 25% reduction to Sierra Gorda’s Net Asset Value.

Strong Leverage to Base Metals Prices

Higher copper and aluminium prices have led to strong earnings upgrade for FY26-28. In context, copper and aluminium account for ~40% of S32’s Net Present Value. At the time of writing, the spot copper price has risen by +22% in the year to date, largely due to supply disruptions at key mines, including Grasberg, Kamoa-Kakula, QB2, and El Teniente. Aluminium prices have also had recent strong performance, up +17% over the past six months.

Net Cash Position Supports Further Capital Management

S32 held a net cash position of US$64m as at 30 September 2025, following payment of the fully-franked dividend of US$117m for the June half-year, continued investment at Hermosa and working capital build of ~US$100m.

In the near term, the net cash position is expected to supported by stronger operating cashflow from higher commodity prices. In addition, the Company expects to receive proceeds of US$100m from the recently-announced divestment of Cerro Matoso nickel.

Fundamental View

S32 is currently trading at a discount to its valuation of ~15% and offers an entry opportunity at current levels given:

i. Strong leverage to base metals (as reflected in an EPS growth profile of +20% over FY25-28 on a CAGR basis),
ii. Strong operational performance that offers upside risk to FY26 production guidance and
iii. Balance sheet optionality to support further capital management. Historically, investors have been attracted to S32’s capital management and dividend yield.

Charting View

Since the low in April, S32 has gone on to form a higher low and a higher high. It is congesting under the long-term downtrend line and it appears poised to break higher. S32 is tentative buy here and more conservative investors may wait for it break the downtrend line first. That is, a break weekly close above $3.40. If it were to break above that downtrend line, then we would expect a new uptrend to commence. Initial stops can be considered just under $3.

 

Michael Gable is managing director of Fairmont Equities.

 

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