South32 Ltd - Delivering Sector-leading Results With Strong Management Team

South32 Ltd (LON: S32) is a Perth, Australia-based globally variegate metal and mining company, engaged in the exploration, refining, transport and marketing of a series of products including Alumina, Aluminium, Bauxite, Energy Coal, Metallurgical Coal, Lead, Nickel, Manganese, Silver and Zinc. 

Trading and Production Update for Q3 Financial Year 2020
On 20^th April 2020, South32 released an update on trading and production for the third quarter of the financial year 2020. The Group maintained financial strength by reducing its capital expenditure guidance and suspending share buy-back program for remaining USD 121 million. The Company is expected to reduce controllable costs across operations from the financial year 2021. In the Q3 FY2020, the net cash declined by USD 127 million to USD 150 million. Due to imposed restrictions, the group removed its guidance for Colombia and South Africa operations and reduced its production guidance for FY2020. The Company received an approval from the South African government to operate at limited capacity. The Alumina production in Brazil increased by 4 per cent and at Worsley Alumina maintained calciner at high rate. At Hillside Aluminium, the company delivered the highest production YTD (year to date).

Share Price Performance

Daily Chart as of June 5^th, 2020, before the market close (Source: Refinitiv,Thomson Reuters)

South32 Ltd shares were trading at GBX 120.22 at the time of writing before the market close (at 8:46 AM GMT+1) on 5^th June 2020 and were up by 0.02% versus the previous day closing price. Stock's 52 weeks High is GBX 181.72 and Low is GBX 80.04.

From the technical standpoint, its shares were trading well above its short-term support level of 20-day simple moving average prices, which reflects an uptrend in the stock and carrying the potential to move up further.

Valuation Methodology

*Peers: Glencore Plc, Antofagasta Plc and Rio Tinto Plc.

*Currency Exchange rate taken for 1 USD = 0.78866 GBP.
 
Growth Catalysts
South32 Ltd has a decent business model, and strong liquidity position, which makes it an attractive value proposition among the minerals and mining sector. The company is also continuously improving and reshaping via acquisitions to increase its operational performance.

Conclusion
To tackle the uncertain market conditions, South32 has taken steps to improve its financial strength by reducing capital expenditure and suspending share buy-back. The Company expects to reduce controllable costs across the group from the financial year 2021. Due to imposed lockdown, the group has reduced its production guidance for FY2020 and withdrawn operational guidance from Colombia and South Africa regions.The group operational performance remained ahead of schedule for multiple commodities. The company’s Hillside Aluminium, Brazil Alumina and Worsley Alumina delivered record production with higher output rates.

Based on the decent growth prospects and the valuation done using the above method, we have given a “Hold” recommendation at the current price of GBX 119.60 (as on 5^th June 2020, before the market close at 8:50 AM GMT+1).

Central Asia Metals Plc - Diversified Base Metals Producer at Low Cost

Central Asia Metals Plc (LON: CAML) is a low cost, diversified base metals producer with copper operations in Kazakhstan and lead mine in North Macedonia.

Financial Highlights – Lower Operating Expenses for FY2019 (31st December 2019)
 
                                                                        
  (Source: Annual Report, Company Website)

For the financial year ending 31st December 2019, driven by lower gross revenue for the period, the revenue declined to USD 171,748 thousand as against USD 194,379 thousand in FY2018. The group’s operating profit stood at USD 78,612 thousand in the financial year 2019 as against USD 87,416 thousand in FY2018. The PBT (profit before tax) declined to USD 67,795 thousand in FY2019 versus a PBT (profit before tax) of USD 72,681 thousand in FY2018. The PAT (profit after tax) from continuing operations stood at USD 51,884 thousand in FY2019 versus USD 53,859 thousand in FY2018. The Profit for the year (continuing and discontinued operations) stood at USD 51,937 thousand in FY2019 versus USD 46,585 thousand in FY2018. The basic earnings per share (continuing and discontinued operations) stood at 29.39 cents in FY2019 versus 27.21 cents in FY2018. The diluted earnings per share (continuing and discontinued operations) stood at 28.57 cents in FY2019 versus 26.53 cents in FY2018.

Share Price Performance

Daily Chart as of June 5^th, 2020, before the market close (Source: Refinitiv,Thomson Reuters)

Central Asia Metals Plc shares were trading at GBX 156.44 at the time of writing before the market close (at 9:26 AM GMT+1) on 5^th June 2020 and were up by 2.25% versus the previous day closing price. Stock's 52 weeks High is GBX 233.00 and Low is GBX 100.20.

From the technical standpoint, its shares were trading well above its short-term support level of 20-day simple moving average prices, which reflects an uptrend in the stock and carrying the potential to move up further.

Valuation Methodology


Growth Catalysts
Increasing global demand for copper may lead to a potential increase in the demand for the company’s products. Central Asia Metals supports growth in its diversified portfolio through the acquisition and integration of firms as part of an inorganic growth strategy.

Conclusion 
During the period, due to current global uncertainties, the financials of the group were impacted, and valuation declined as commodity prices fell. But its ability to generate significant free cash flow, low production costs and long-life assets indicates a strong position in the short and long term. The company has a majority stake in the copper, molybdenum, and gold projects. The company’s strong asset base focus on safety and strong operating performance are its major strengths, even as declining cash position remains an area of concern. Going forward, environmental regulations, increasing manpower cost in the UK, and operational risks may impact the company’s performance. However, growing demand for copper, strategic acquisition and technological advancements are likely to present new growth opportunities to the company. 
Based on the decent growth prospects and the valuation done using the above method, we have given a “Hold” recommendation at the closing price of GBX 153.00 (as on 4^th June 2020).
 
*All forecasted figures and Peer information have been taken fromRefinitiv, Thomson Reuters.

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