South32 Limited (ASX: S32) shares surged on 25 August 2022 following the release of its FY2022 results. The Company delivered record earnings and cash flow during the period. The Company achieved record production at Worsley Alumina. At Cannington, it surpassed production guidance as it moved to a new mine configuration, bringing forward higher-grade material. At Cerro Matoso, S32 achieved an increase of 22% in nickel production.

Besides the above developments, the Company also made significant progress in transforming its portfolio. It increased its exposure to metals critical to a low-carbon future. Metals like copper were included in its portfolio by acquiring 45% interest in Sierra Gorda. It also doubled its low-carbon aluminium capacity with a further shareholding in the hydro-powered Mozal Aluminium smelter as well as the resume of its 100% renewable powered Brazil Aluminium smelter.

At Hermosa, the Company completed the pre-feasibility study for the zinc-lead-silver Taylor Deposit. It establishes S32’s likely to be an internationally significant producer of base metals as well as advanced the Company’s study of choices for battery-grade manganese Clark Deposit.

Keeping these developments in mind, let’s look at the financial numbers posted by the Company.

Financial Highlights:

• Revenue during the period increased 69% to US$9,269 million. Underlying revenue increased 45% to US$10,630 million.

• Net income during the period was US$2,669 million, which was a net loss of US$195 million in the previous corresponding period. Underlying earnings increased 432% to US$2,602 million.
• S32 announced FY2022 ordinary dividend of US 22.7 cents, up 363% compared to FY2021. Special dividend increased 50% to US 3 cents.
• ROIC increased by 23.9% to 30.1%.

Balance Sheet Highlights:

S32 has a strong balance sheet with net cash of US$538 million after funding new investments during the period.

• Cash and cash equivalents increased from US$1,613 million to US$2,365 million.
• Total assets grew from US$13,242 million in FY2021 to US$16,336 million in FY2022.
• Total liabilities increased due to a significant increase in interest-bearing liabilities. It grew from US$4,288 million in FY2021 to US$5,557 million in FY2022.

Glance at S32’s performance:

S32 shares have increased ~17% in the last one month and ~47% in the previous one year. At AEST 3:20 PM, S32 shares are trading at AU$4.290, up 1.418% from its previous close.

Is S32’s outlook positive?

In its FY2022 presentation, S32 highlighted that it expects recent investments and the execution of improvement projects to lift Group copper equivalent production by 14% from its FY2022 baseline.

From the above chart, we see that the Company expects significant growth in Aluminium production. S32 expects a 20% rise in FY2023 with a higher share of Mozal Aluminium and the restart of the Brazil Aluminium smelter. Besides these metals, the Company expects a recovery in its Metallurgical and energy coal in FY2023 with less longwall moves and recovery from wet weather. However, it is conditional upon maintaining labour productivity as it negotiates Enterprise Arrangements at Appin.

Worsley Alumina is expected to increase from US$274/t in 2H FY2022 to US$296/t in FY2023.

Some Key developments post FY2022:

• S32 sold 4 non-core base metals royalties to Anglo Pacific Group Plc for up to US$200 million.
• Completed the acquisition of a 9.9% interest in Aldebaran Resources Inc. It is the owner of the Altar copper project in Suan Juan, Argentina. The acquisition is in line with the Company’s objective of adding options prospective for upcoming base metal developments.

Bottomline:

S32 is a diversified mining and metals company that produces commodities like bauxite, alumina, aluminium, copper, silver, lead, zinc, nickel, metallurgical coal, and manganese. Further, the Company has increased its exposure to metals critical to a low-carbon future, the current most discussed topics worldwide because of the rising environmental concerns.

The metals in which the Company deal has a wide-scale application. Dealing with these commodities, along with offices to support customers in Europe, the Middle East, and the Atlantic regions, and in South Africa and Australia, indicates a positive outlook for the Company. Thus, it increases the chance of driving S32 shares up in the coming days.

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